USD/TRY recedes from record highs near 25.7000

• USD/TRY advances to fresh all-time tops near 25.70.
• Markets remain skeptic of the recent CBRT rate hike.
• The lira plunges more than 20%... just in June.

Another day, another record low of the Turkish currency vs. the US Dollar, this time sending USD/TRY to the 25.70 region on Friday.

USD/TRY pushes higher despite CBRT rate hike

USD/TRY extends further the monthly needle-like upside and surpasses the 25.00 barrier, as investors remain highly skeptic after Thursday’s rate hike by the Turkish central bank (CBRT) fell short of investors’ expectations.

Indeed, the CBRT hike the One-Week Repo Rate by 650 bps to 15% on Thursday (vs. consensus for a move to 20%) in what was the first rate raise since the summer of 2021.

From its statement, the central bank's objective was to initiate the process of monetary tightening, establish a trajectory towards lower inflation, stabilize inflation expectations, and manage pricing behavior. The CBRT reaffirmed its commitment to the 5% inflation target and did not rule out the possibility of implementing additional measures for monetary tightening to achieve this target.

So far in June, the lira (TRY) has already depreciated more than 20%... and the month is not over yet…

What to look for around TRY

USD/TRY extends the rally on the back of the persistent selling bias in the Turkish currency.

In the meantime, investors are expected to closely monitor upcoming decisions on monetary policy. By appointing Mehmet Simsek and Hafize Gaye Erkan, both former Wall Street bankers, to oversee the country's finances, President R. T. Erdogan seems to suggest a possible move away from heavy state intervention in favor of letting the market dictate the fair value of the currency.

Although it remains uncertain whether Mr. Erdogan's preference for combating inflation through lower interest rates will allow Simsek and Erkan's orthodox approach to monetary policy to thrive, the news of their appointment has been so far welcomed with high scepticism by market participants. 

In a broader sense, price action around the Turkish currency is expected to continue to revolve around the performance of energy and commodity prices, which are directly tied to developments from the Ukraine conflict, broad risk appetite trends, and dollar dynamics.

Key events in Türkiye this week: Economic Confidence Index, Trade Balance (Friday).

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

USD/TRY key levels

So far, the pair is gaining 1.05% at 25.0662 and faces the next hurdle at 25.7273 (all-time high June 23) followed by 26.00 (round level). On the downside, a break below 20.6567 (55-day SMA) would expose 19.8867 (100-day SMA) and finally 19.2464 (200-day SMA).