USD/TRY stays on the way to $14.00 on Fed concerns, Turkey’s economic backlash

• USD/TRY hovers around intraday high, mildly bid after two-day uptrend.
• Turkish Finance Minister praise recent steps to fight inflation.
• FOMC Minutes, US ADP Employment Change hints at faster Fed rate-hikes, balance-sheet normalization.
• US ISM Services PMI, second-tier data will join risk catalysts to direct short-term moves.

Alike other currency pairs, USD/TRY also trades quietly during an inactive Asian session on Thursday. That said, the Turkish lira (TRY) pair gains 0.25% intraday around $13.70 by the press time.

Firmer US ADP Employment Change for December, 804K versus 400K expected, bolstered bullish bias for the Fed after the Federal Open Market Committee (FOMC) Meeting Minutes said, “In light of elevated inflation pressures and the strengthening labor market, participants judged that the increase in policy accommodation provided by the ongoing pace of net asset purchases was no longer necessary.” The Fed Minutes also signals that the policymakers also judged conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continues.

Following the Minutes, the Fed interest rate futures point at the 80% chance of a hike in March 2022. Also, the US 10-year Treasury yields jumped to the highest level since April 2021 by the end of Wednesday’s North American session, up 3.4 basis points (bps) to 1.70%, which in turn drowned the Wall Street benchmark. Though, the recent pause in the US bond yields allowed S&P 500 Futures to print mild gains around 4,700.

On the other hand, Turkish Auto association portrays a 4.6% drop in 2021 while the Reuters’ poll expects the nation to snap three straight months of current account surpluses in November, with a likely deficit of $2.56 billion. Even so, Finance Minister Nureddin Nebati said on Wednesday, per Reuters, “Turkey is making the fight against rising prices a priority, putting aside ‘orthodox policies’ and charting its own course.”

Looking forward, monthly prints of the US Good Trade Balance and ISM Services PMI for December, as well as weekly prints of US Jobless Claims, will be crucial for the USD/TRY prices. Should the US statistics keep beating the cautious forecasts, the odds of the faster Fed rate hikes can’t be ignored, which in turn will favor the pair buyers. However, Friday’s US Nonfarm Payrolls (NFP) is the key.

Read: US December Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises

Technical analysis

Although sustained trading beyond the 21-DMA level of $13.30 keeps USD/TRY buyers hopeful, a clear upside break of the 13-day-old resistance line, around $13.90, becomes necessary for the pair’s further upside.