USD/TRY advances to record highs around 21.5000

• USD/TRY extends the upside to the 21.5000 region.
• There seems to be no respite for the lira meltdown so far.
• Inflation in Türkiye dropped below 40% YoY in May.

Further weakness in the Turkish currency props up a new record high in USD/TRY, this time hitting the 21.5000 zone on Tuesday.

USD/TRY: Next target… the moon?

USD/TRY keeps the march north unabated, in the meantime, as investors continue to dump the lira following President Erdogan’s win at the general elections on Sunday and despite the appointment of well-known orthodox M. Simsek.

Recently, finmin Simsek emphasized the crucial importance for Turkey to bring down inflation to single digits once more in the medium term. Additionally, he stressed the need to accelerate the process of structural transformation, which would help alleviate the current account deficit.

It is worth recalling that Monday saw the CPI rise 39.59% YoY in May and 0.04% vs. the previous month.

The lira has lost already more than 15% since the beginning of the year and nearly 150% since the Turkish central bank (CBRT) embarked on its easing cycle in August 2021.

What to look for around TRY

USD/TRY maintains its upside bias well in place, always underpinned by the relentless meltdown of the Turkish currency.

In the meantime, investors are expected to closely monitor upcoming decisions on monetary policy, particularly after President R. T. Erdogan named former economy chief M. Simsek as the new finance minister following the cabinet reshuffle in the wake of the May 28 second round of general elections.

The appointment of Simsek has been welcomed with optimism by market members in spite of the fact that it is not yet clear whether his orthodox stance on monetary policy can survive within Erdogan’s inclination to battle inflation via lower interest rates.

In a more macro scenario, price action around the Turkish lira is supposed to continue to spin around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine, broad risk appetite trends, and dollar dynamics.

Key events in Türkiye this week: Industrial Production (Friday).

Eminent issues on the back boiler: Persistent skepticism over the CBRT credibility/independence. Absence of structural reforms. Bouts of geopolitical concerns.

USD/TRY key levels

So far, the pair is gaining 1.27% at 21.4938 and faces the next hurdle at 21.5136 (all-time high June 5) followed by 22.00 (round level). On the downside, a break below 19.5815 (55-day SMA) would expose 19.2495 (100-day SMA) and finally 18.8910 (200-day SMA).