USD/TRY struggles to cheer USD weakness above 18.00 amid inflation fears in Turkiye

• USD/TRY ignores broad US dollar weakness amid sluggish session.
• CBRT versus Fed divergence widens after Fed’s Powell signaled more rate hikes, Turkish inflation stays near 24-year high.
• Risk appetite improves amid upbeat headlines surrounding China, hopes that central bankers will be able to tame pessimism.

USD/TRY fails to cheer the US dollar weakness as it picks up bids near 18.23 during early Friday morning in Europe. In doing so, the Turkish lira (TRY) pair highlights inflation fears at home and the hawkish Fedspeak while paying a little heed to the broad optimism.

The Turkish inflation woes escalate amid fears surrounding the nation’s grain imports as the West doubts the Ukrainian exports to the nation, which in turn suggests further upside pressure on the prices.

That said, the Turkish Consumer Price Index (CPI) rose to the highest level since September 1988 in August, to 80.21% versus 81.22% expected and 79.60 prior, during its monthly release on Monday.

The inflation data has been on an uptrend for a long but the Central Bank of the Republic of Türkiye (CBRT) refrains from rate hikes, like its Western counterparts. On the contrary, the CBRT surprised markets by announcing 100 basis points (bps) of a rate cut in late August.

On the other hand, Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September.

It should be noted, however, that hopes of easing in the US-China trade ties, due to the impending US waiver of Trump-era sanctions on Chinese goods, seem to have favored the market sentiment during early Friday. As a result, the US Dollar Index (DXY) prints the biggest daily loss in a month while refreshing the one-week bottom around 108.75, close to108.90 by the press time.

Moving on, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for clear directions.

Technical analysis

A two-week-old resistance line near 18.32 precedes December 2021 top surrounding 18.40 to restrict short-term USD/TRY upside. The pullback moves, however, need validation from June’s top near 17.80 to convince bears.