USD/TRY: Lira slowly fills CBRT-induced gap below 27.00 as Turkish GDP, Fed inflation loom

• USD/TRY edges higher around weekly top, struggles to extend two-day uptrend.
• Cautious mood ahead of Fed’s favorite inflation gauge prod Turkish Lira traders.
• CBRTs’ utter hawkish move contrasts with likely end to Fed’s rate hike cycle and test USD/TRY buyers.
• Sellers eyed firmer Turkish Q2 GDP, softer US Core PCE Price Index for August.

USD/TRY clings to mild gains around 26.72 heading into Thursday’s European session as it consolidates last Thursday’s heavy losses, the biggest since December 2021, ahead of the key data from Turkiye and the US. It should be noted, however, that a cautious mood prods the Turkish Lira (TRY) traders.

In doing so, the USD/TRY pair fails to justify the broad-based US Dollar losses amid fears of an end to the Federal Reserve’s (Fed) hawkish cycle, backed by downbeat US data. The reason could be linked to the market’s lack of confidence in the Central Bank of the Republic of Türkiye’s (CBRT) capacity to tame the high inflation in Ankara despite taking tough decisions of late. On the same line could be the US Dollar’s positioning for this week’s top-tier inflation and employment clues.

On the last Thursday, the Turkish central bank CBRT surprised global markets by lifting the benchmark rates to 25%, versus 20% expected and 17.5% previous readings.  The move allowed the Lira to mark the biggest daily gain since late 2021. However, the market’s doubt about the credibility of such measures seems to have weighed on the TRY afterward.

On the contrary, the US Dollar Index (DXY) stays defensive at the 200-DMA support while testing the three-day losing streak as traders seek more clues to confirm the dovish bias about the US Federal Reserve.

So far during the week, the early signals for Friday’s Nonfarm Payrolls (NFP), namely the ADP Employment Change, the US second quarter (Q2) Gross Domestic Product (GDP) Annualized and the US Conference Board’s Consumer Confidence figures have exerted downside pressure on the US Dollar.

Amid these plays, the S&P 500 Futures struggle to track Wall Street’s gains amid the market’s anxiety ahead of the key US data. However, the benchmark US 10-year Treasury bond yields remain pressured at the lowest levels in three weeks, around 4.11% by the press time.

Looking forward, the Quarterly Gross Domestic Product from Turkiye, expected 3.5% for the second quarter versus 4.0% prior, will direct immediate moves of the USD/TRY pair. Following that, the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for August, expected to remain unchanged at 0.2% MoM but edge higher to 4.2% YoY from 4.1% prior.

Technical analysis

The 21-DMA hurdle of around 26.85 guards the immediate upside of the USD/TRY pair as it awaits the key Turkish/US data. It’s worth noting, however, that the pullback remains elusive beyond the 25.30. That said, the downbeat oscillators and repeated failure to cross the immediate DMA lure the pair sellers.