USD/TRY jumps past 24.00 to clinch new all-time high

• USD/TRY trespasses the 24.00 hurdle followed the CBRT hike.
• Markets perceives as insufficient the CBRT rate raise.
• The central bank hiked rates by 650 bps to 15.00%.

It is never enough for the Turkish lira, is it not?

On Thursday, the Turkish lira experienced a significant decline, reaching record lows against the US dollar and pushing USD/TRY well above the 24.00 level.

USD/TRY ignores CBRT rate hike

The Turkish currency's depreciation gained further momentum as the rate hike fell short of market participants' expectations. The CBRT raised the One-Week Repo Rate by 650 basis points to 15.00% during its event.

It is important to note that there was a consensus among analysts that the first rate hike since August 2021 would be around 20%, especially after President Erdogan appointed M. Simsek as the Finance Minister and H. Erkan as the CBRT Governor following the May 28 elections.

The central bank's objective with this move was to initiate the process of monetary tightening, establish a trajectory towards lower inflation, stabilize inflation expectations, and manage pricing behavior.

The CBRT reaffirmed its commitment to the 5% inflation target and did not rule out the possibility of implementing additional measures for monetary tightening to achieve this target.

Moreover, the lira faced additional selling pressure as domestic banks ceased interventions aimed at supporting the struggling currency.

What to look for around TRY

USD/TRY now seems to have embarked on a consolidative phase in the upper end of the recent range.

In the meantime, investors are expected to closely monitor upcoming decisions on monetary policy. By appointing Mehmet Simsek and Hafize Gaye Erkan, both former Wall Street bankers, to oversee the country's finances, President R. T. Erdogan seems to suggest a possible move away from heavy state intervention in favor of letting the market dictate the fair value of the currency.

Although it remains uncertain whether Mr. Erdogan's preference for combating inflation through lower interest rates will allow Simsek and Erkan's orthodox approach to monetary policy to thrive, the news of their appointment has been so far cautiously welcomed by market participants. 

In a broader sense, price action around the Turkish currency is expected to continue to revolve around the performance of energy and commodity prices, which are directly tied to developments from the Ukraine conflict, broad risk appetite trends, and dollar dynamics.

Key events in Türkiye this week: Consumer Confidence (Monday) – Capacity Utilization, Manufacturing Confidence (Wednesday) – CBRT Interest Rate Decision (Thursday) – Economic Confidence Index, Trade Balance (Friday).

Eminent issues on the back boiler: Persistent skepticism over the CBRT credibility/independence. Absence of structural reforms. Bouts of geopolitical concerns.

USD/TRY key levels

So far, the pair is gaining 3.39% at 24.3105 and faces the next hurdle at 24.6139 (all-time high June 12) followed by 24.00 (round level). On the downside, a break below 20.5294 (55-day SMA) would expose 19.8125 (100-day SMA) and finally 19.2064 (200-day SMA).