USD/TRY pares intraday losses to six-week low, still deep in the red above 11.00 mark

• USD/TRY remained under intense selling pressure for the fourth successive day on Thursday.
• The recent measures announced by the Turkish government continued lending support to the lira.
• Extremely overstretched conditions prompted intraday short-covering move amid thin liquidity.

The USD/TRY pair extended its dramatic turnaround from a record high touched earlier this week and continued losing ground through the mid-European session on Thursday. This marked the fourth successive day of a negative move and dragged spot prices to a six-week low, around the 10.20 region in the last hour. The pair, however, found some support at lower levels and quickly bounced back above the 11.00 round-figure mark.

The Turkish lira's recent strong gains came after the government announced extraordinary measures on Monday, which include the introduction of a new program to protect savings from currency fluctuations. Adding to this, President Recep Tayyip Erdogan said the government and the Central Bank of the Republic of Turkey (CBRT) would guarantee certain local currency deposits against FX depreciation losses.

Erdoğan also reassured that citizens would not have to convert lira savings into foreign exchange due to volatility and emphasized that Turkey is committed to the free market economy. The President further underlined that Turkey is adamant about its new economic model and stuck to his unconventional policy to use lower interest rates to combat inflation.

Nevertheless, the lira remains on track to record its best weekly gains ever, around 40% and seemed rather unaffected by a modest pickup in the US dollar demand. That said, extremely overstretched conditions prompted some short-covering amid relatively thin liquidity conditions ahead of the year-end holiday season.