USD/TRY: No respite for the collapse of the lira

• USD/TRY advances to fresh record high around 23.6500.
• Türkiye Unemployment Rate edged a tad higher in April.
• Markets’ focus remains on the domestic economic scenario.

USD/TRY climbs to new all-time peak around the 23.6500 region at the beginning of the week.

USD/TRY: Next on the upside comes 24.00

USD/TRY adds to Friday’s advance and surpassed the 23.50 region with marked conviction to print a new record high on Monday.

The intense sell-off in the lira remains so far unabated amidst rising scepticism among investors at home and abroad regarding the potential next steps on monetary policy by the newly appointed economic team.

It is worth recalling that President R. T. Erdogan named M. Simsek as Treasury and Finance Minister, while former First Republic Bank Hafize Gaye Erkan will be at the helm of the Turkish central bank (CBRT). This move by Erdogan is expected to show a more market-friendly approach to the country’s economic front and may (a big "may") open the door to a more orthodox view of domestic monetary policy. 

It remains to be seen, however, whether Erkan can impose her monetary will under Erdogan's leadership. The first round of this match is expected on June 22, when the CBRT will hold its monetary policy meeting amidst a pretty divided consensus between small rate hikes and a "shock and owe" strategy of a large rate raise.

So far, the Turkish currency has already depreciated nearly 28% since the start of the new year, while the drop has reached around 185% since the Turkish central bank (CBRT) embarked on its easing cycle in August 2021.

Also in the centre of the debate later this week appears to be a meeting between finmin M. Simsek and top bank executives.

On the domestic docket, the Unemployment Rate in Türkiye rose slightly to 10.2% in April and the Current Account deficit widened to $5.40B in the same month.

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: Current Account, Unemployment Rate (Monday) – Retail Sales (Tuesday) – Budget Balance (Thursday) – End Year CPI Forecast (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 1.49% at 23.6430 and faces the next hurdle at 23.6504 (all-time high June 5) followed by 22.00 (round level). On the downside, a break below 19.8906 (55-day SMA) would expose 19.4306 (100-day SMA) and finally 18.9930 (200-day SMA).