USD/TRY dribbles around record high, Fed vs. CBRT divergence eyed

• USD/TRY grinds near the all-time high during a sluggish start to the key week.
• Turkish President Erdogan pledged to keep cutting rates as long as he is in power.
• Hawkish Fed bets, firmer US data also favor the pair buyers.
• Off in the US, light calendar elsewhere probe buyers.

USD/TRY seesaws around 18.60 during early Monday morning in Europe as the fears of more rate cuts from Turkey contrasts with the hawkish Fed bets. That said, holidays in the US, Canada and Japan restricts the Turkish lira (TRY) pair’s immediate upside moves.

Turkish President Tayyip Erdogan vowed on Saturday that the central bank would continue to cut its policy interest rates every month for as long as he stayed in power, after it surprised markets by cutting rates twice in the last two months, per Reuters.

It’s worth noting that the record high inflation in Turkiye pushes the Central Bank of the Republic of Türkiye (CBRT) towards rate hikes but the policymakers’ resistance for the same weighs on the TRY prices of late.

On the contrary, the US Dollar Index (DXY) struggles around a one-week high after rising for the last three consecutive days. In doing so, the greenback gauge pauses the previous week’s reversal of the 20-year high, marked late in September.

Unlike the Turkish policymakers, the Fed members keep favoring the rate hikes even at the cost of a short-term economic slowdown. Also fueling the hawkish Fed bets is the latest US jobs report for September. On Friday, the headline Nonfarm Payrolls (NFP) rose to 265K versus the 250K expected. Also portraying the strength of the US employment conditions, as well as weighing on the market’s mood, was an unexpected fall in the Unemployment Rate to 3.5% compared to forecasts suggesting no change in the 3.7% prior. Following that, the CME’s FedWatch tool signals the 78% chance for the US central bank’s 75 bps rate hike in November.

In addition to the Fed-inspired bids, the DXY also cheers the risk-off mood amid pessimism surrounding the economic slowdown due to the Russia-Ukraine and the Sino-American tussles.

Against this backdrop, the Wall Street benchmarks closed in the red while the S&P 500 Futures dropped for the fourth consecutive day while poking the monthly low near 3,630, down 0.40% intraday at the latest. That said, the US 10- Treasury yields rose for eight consecutive weeks in the last before pausing around 3.90%.

Looking forward, Turkey has second-tier economics like Industrial Production and Unemployment Rate up for publishing but Wednesday’s Federal Open Market Committee (FOMC) Minutes and Thursday’s US Consumer Price Index (CPI) will be crucial for short-term directions. That said, the bulls are likely to keep the reins as the CBRT diverges from the Fed when it comes the monetary policy actions.

Technical analysis

Unless breaking the 10-DMA level surrounding 18.55, not even the short-term USD/TRY sellers might risk taking entries.