USD/TRY grinds higher towards 17.00 on Turkish inflation woes, Fed’s Powell eyed

• USD/TRY picks up bids to reverse early-day losses, keeps previous day’s rebound from three-week low.
• Fears of higher inflation in Turkey recall pair buyers ahead of the key ECB Forum event.
• Turkey’s agreement to lift opposition over Sweden and Finland’s joining of NATO probe upside moves.
• Fed’s Powell needs to defend hawkish policies and hint at something more to keep USD on the front foot.

USD/TRY extends the previous day’s recovery moves to 16.67 during early Wednesday morning in Europe. The Turkish lira (TRY) pair’s latest rebound could be linked to the fresh fears of higher inflation in Turkiye, as well as a cautious mood ahead of important monetary policy discussions among the central bankers from the US, the UK and the European Union (EU) at the ECB Forum.

That said, the latest Reuters poll said that Turkiye's inflation is expected to rise above 78% in June and it was seen declining to just below 70% by end-2022. The survey also mentioned the reason by stating, “As pricing behavior deteriorates across the board due to a weak currency and a loose monetary policy.”

It’s worth noting that the nation’s Consumer Price Index (CPI) rallied to 73.5% in May while refreshing a multi-year high. However, President Recep Tayyip Erdogan refrains from rate hikes and rather pushes qualitative measures termed as ‘liralization’ to defend the national currency. The next reading for Turkish CPI will be for May and will be out on Monday.

On the other hand, a jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.

It should be noted that Turkey’s step back from a hard stand over Sweden and Finland’s joining of North Atlantic Treaty Organization (NATO) challenge the USD/TRY buyers. On the same line could be the recently softer US Treasury yields amid recession fears.

Looking forward, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of the US Q1 GDP, which is likely to confirm a 1.5% Annualized contraction. Above all, the central bankers’ discussions at the ECB Forum will be the key for the market players to watch for clear directions.

Technical analysis

The USD/TRY pair’s corrective pullback remains elusive until crossing the previous support line from early May, around 17.00 by the press time. Alternatively, 50-DMA restricts the immediate downside of the pair at around 16.07.