USD/TRY retreats from yearly top ahead of CBRT

• USD/TRY snaps three-day uptrend after rising to the highest levels since December 2021.
• CBRT is expected to leave benchmark rate unchanged at 14.0%, despite record inflation.
• US dollar retreats as Nord Stream 1 restores gas flow, ECB rate hike looms.

USD/TRY bulls take a breather around a seven-month high as the quote retreats to 17.58 heading into Thursday’s European session. In doing so, the Turkish lira (TRY) pair prints the first daily loss in four as traders await a monetary policy meeting on the Central Bank of the Republic of Turkiye (CBRT).

The quote refreshed the yearly high earlier in the day as markets expect no change in the CBRT’s monetary policy even if the Turkish inflation jumped to a record high in May.

Earlier in the month global credit rating agency cut Turkiye’s debt rating to "B" from "B+" on Friday, citing rising inflation and economic concerns, per Reuters. The reason could be linked to the nation’s continuous push for qualitative measures and resistance toward the rate hike even if the headlines inflation refreshes all-time high. That said, the Turkish Consumer Price Index (CPI) jumped to a record high of around 39.0% during June.

On a broader front, restoration of the gas flows from Russia’s Nord Stream 1 pipeline, even if gradual, appeared to have improved the market’s mood although Germany considers it as 30% of capacity. The same joins the pre-Fed blackout period and the hopes of a hawkish move from the European Central Bank (ECB) to weigh on the US dollar.

Amid these plays, the US 10-year Treasury yields fail to improve, down 1.5 basis points near 3.02% but the S&P 500 Futures reverse early day losses and gain upside momentum.

Moving on, likely inaction from the CBRT and anticipated disappointment from the ECB may keep USD/TRY bulls hopeful. However, any surprises won’t be taken lightly.

Technical analysis

Unless declining below the previous resistance line from June, around 17.50 by the press time, USD/TRY bulls remain on their way to the 2021 yearly high near 18.35.