USD/TRY retreats after refreshing record top past 25.70 amid recession fears

• USD/TRY struggles to defend post-CBRT rally as market players seek more clues at all-time high.
• CBRT lifted benchmark rate to 15% from 8.5%, versus 21% expected.
• Fears of higher rates to weigh on already fragile Turkish economy, broad US Dollar strength favor USD/TRY bulls.
• Mid-tier Turkish data, US PMIs eyed for clear directions.

USD/TRY remains sidelined around 25.15 after a whipsaw start to Friday’s trading that initially refreshed the all-time high with a 25.72 figure before reversing the gains heading into the European session.

The Turkish Lira (TRY) pair failed to cheer the bumper rate hike from the central bank the previous day as a gamut of hawkish central bank actions worldwide bolstered the market’s fears of economic slowdown and propelled the US Dollar.

On Thursday, the Central Bank of the Republic of Türkiye (CBRT) hiked rates for the first time since August 2021, to 15% from 8.5% versus the 21% expected. The CBRT reiterated its commitment to the 5% inflation target and did not rule out additional monetary tightening measures to achieve this target. However, the USD/TRY refreshed a record high of 24.61 following the CBRT announcements.

That said, US Dollar Index (DXY) picks up bids to extend the previous day’s rebound from a six-week low to around 102.65 by the press time as markets remain risk averse despite China’s holiday and cautious mood ahead of the preliminary PMIs for June.

Apart from the risk profile. Fed Chairman Jerome Powell repeated most of his previous day’s remarks during his testimony 2.0, this time in front of the Senate Housing Committee. Though his statements like, “(It) will be appropriate to raise rates again this year, perhaps two more times,” allowed the US Dollar to refresh the intraday high while eyeing to reverse Wednesday’s losses. Earlier in the day, Richmond Fed President Thomas Barkin joined US Treasury Secretary Jannet Yellen to flag economic fears.

Against this backdrop, the S&P500 Futures print mild losses after the previous day’s mixed closing of Wall Street and upbeat US Treasury bond yields. That said, the US 10-year and two-year Treasury bond yields rose the most in a week after the central banks’ play before recently easing to around 3.78% and 4.79% in that order.

Moving on, the risk-off mood can keep fueling the USD/TRY price while Turkish Economic Confidence for June and Trade Balance for May will direct immediate moves. Following that, the first readings of the US S&P Global PMIs for June will be crucial as recession woes regain the market’s attention and put a floor under the USD.

Technical analysis

While the 25.50 and 26.00 round figures challenge the immediate upside of the USD/TRY pair, the Turkish Lira (TRY) buyers will remain off the table unless witnessing a daily closing below the monthly support line, around 23.78 at the latest.