USD/TRY climbs to new 2022 highs near 18.00

• USD/TRY gathers further upside traction and approaches 18.00.
• The pair trades in levels last seen in December 2021.
• The FOMC is expected to hike rates by 75 bps later on Wednesday.

The Turkish lira remains well on the defensive and lifts USD/TRY to fresh YTD peaks in the area just shy of the 18.00 mark on Wednesday.

USD/TRY focuses on Fed, CPI

The upside bias in USD/TRY remains everything but abated on Wednesday and already trades at shouting distance from the 18.00 mark, ana area last visited in late December 2021.

Indeed, the pair has closed with gains uninterruptedly since July 18 and in every month so far this year. Furthermore, the lira already shed more than 35% vs. the greenback since the beginning of the year vs. 44% in the whole of 2021.

The lira remains under almost permanent pressure following the energy crunch emerging from the war in Ukraine, while the elevated inflation maintains households’ sentiment depressed amidst the omnipresent inaction of the Turkish central bank (CBRT).

Next on the domestic docket will be the Economic Sentiment Index due on Thursday. Later on Wednesday, the FOMC event will take centre stage, while the Fed is seen raising rates by 75 bps to 2.25%-2.50%, which should be another factor putting the EM FX under extra pressure in the short-term horizon.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and stays on course to revisit the key 18.00 zone.

In the meantime, the lira’s price action is expected to keep gyrating around the performance of energy prices, which appear directly correlated to developments from the war in Ukraine, the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent. In addition, there seems to be no Plan B to attract foreign currency in a context where the country’s FX reserves dwindle by the day.

Key events in Türkiye this week: Economic Confidence Index (Thursday) – Trade Balance (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.37% at 17.9097 and faces the immediate target at 17.9266 (2022 high July 27) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.1903 (weekly low July 15) would pave the way for 16.8419 (55-day SMA) and finally 16.0365 (monthly low June 27).