USD/TRY: Turkish Lira bears prod all-time low under 24.00 as CBRT vs. Fed divergence looms

• USD/TRY bulls take a breather at the record high as traders await the Fed’s verdict.
• Erdogan’s re-election keeps USD/TRY bulls hopeful even as change in CBRT Governor prods Turkish Lira bears.
• Risk of pullback in prices intensifies at higher levels as Fed’s hawkish halt versus CBRT’s likely rate hike looms.

USD/TRY seesaws around the all-time high as markets await the Fed’s verdict on early Wednesday, making rounds to 23.70 of late.

The Turkish Lira (TRY) pair’s upside momentum takes clues from Recep Tayyip Erdogan’s re-election as the national leader. The reason could be linked to Mr. Erdogan’s push for lower rates despite heavy inflation pressure in the economy.

It’s worth noting, however, the latest appointment of a US finance executive Hafize Gaye Erkan as the new Governor of the Central Bank of the Republic of Türkiye (CBRT) triggered concerns that the Turkish central bank may adhere to a few rate hikes to tame the inflation. On the same line could be the fresh appointment of former economy chief M. Simsek as the new Finance Minister.

Alternatively, the US Dollar Index (DXY) remains indecisive at the lowest levels in three weeks, retreating from an intraday high to 103.30 by the press time. In doing so, the greenback’s gauge versus the six major currencies suffers from the market’s dovish expectations from the US Federal Reserve (Fed), mainly due to the downbeat US inflation data.

That said, the latest CME FedWatch Tool reading hints at a 90% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting, versus around 75% chance before that. The reason could be linked to the downbeat US inflation data. That said, the US Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of witnessing no rate hike from the US Federal Reserve (Fed).

Looking ahead, a light calendar at home emphasizes the Federal Reserve’s (Fed) reaction to the latest challenges to the hawkish policy. That said, the downbeat US inflation numbers have already flagged a pause to the Fed’s 18-month-old rate hike cycle. However, details of the economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions.

Technical analysis

Although the 24.00 round figure prods USD/TRY bulls around the all-time high (ATH), a convergence of the previous resistance line from December 2021 and the 50-DMA, around 18.90, holds the key to the USD/TRY bear’s entry.