USD/TRY: Lira pares CBRT-led gains above 26.00 with eyes on Fed Chair Powell’s speech

• USD/TRY pares the biggest daily loss since December 2021 amid broad US Dollar strength.
• Turkish Manufacturing Confidence, Capacity Utilization ease in August.
• Reassessment of CBRT’s bigger-than-expected rate hike, positioning for Fed Chair Powell’s Jackson Hole speech to recall Turkish Lira sellers.
• Other central bankers, mid-tier data from US, Turkiye can also entertain traders.

USD/TRY picks up bids to 26.20 as it consolidates the biggest daily loss since 2021 while bouncing off the two-month low marked the previous day amid early Friday morning in Europe. In doing so, the Turkish Lira (TRY) pair reverses the previous day’s heavy fall due to the bigger-than-expected rate hike from the Central Bank of the Republic of Türkiye (CBRT). That said, the US Dollar’s broad run-up ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech at the annual Jackson Hole Symposium also adds strength to the USD/TRY upside.

It should be noted that the recent downbeat releases of Turkish Manufacturing Confidence and Capacity Utilization for August, to 105.0 and 76.1% from 106.8 and 77.1% respectively, also propel the USD/TRY prices.

On Thursday, the CBRT surprised global markets by lifting the benchmark rates to 25%, versus 20% expected and 17.5% previous readings.

"Appropriate and highly needed move given the broad policy changes (fx protected lira scheme) and rising inflationary pressures," Ipek Ozkardeskaya, Senior Analyst at Swissquote and a regular contributor to FXStreet, told Reuters. "It is of course not enough, The CBRT should continue hiking thoroughly in the coming months, but the move finally surprised markets on the hawkish side - a feeling we had totally forgotten."

On the other hand, the US Dollar Index (DXY) rises to a fresh high since June 07, to 104.28 by the press time, after jumping the most in a month to renew the multi-day peak the previous day.

The DXY’s latest gains could be linked to the upbeat details of the US Durable Goods Orders for July and firmer mid-tier activity data, as well as employment clues. Also keeping the Greenback firmer are the early-day comments from the Fed policymakers and upbeat Treasury bond yields.

Former St. Louis Fed President James Bullard and the current Boston Federal Reserve President Susan Collins appeared hawkish in their speeches at the Jackson Hole interviews. Though, Federal Reserve Bank of Philadelphia President Patrick Harker teased an end of the rate hike trajectory and prod the Greenback buyers during the initial hours of the day.

It should be observed that the pre-event anxiety joins the US-China jitters ahead of US Commerce Secretary Gina Raimondo’s visit to Beijing, scheduled for next week, to also propel the US Dollar and the USD/TRY prices. Amid these plays, S&P 500 Futures remain depressed around 4,385 after falling the most since December 2022 the previous day, while the US 10-year Treasury bond yields reverse the previous pullback from the highest level since 2007, up two basis points (bps) to 4.25% by the press time.

Looking ahead, a slew of central bankers are scheduled to speak at the Jackson Hole Symposium in the next two days and can fuel volatility in the markets, as well as into the USD/TRY prices. However, major attention will be given to European Central Bank (ECB) President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell. Should they manage to push back the policy pivot concerns, the Turkish Lira might have more suffering ahead.

Technical analysis

USD/TRY rebound appears elusive unless crossing 27.00 hurdle on a daily closing basis. Alternatively, the downside break of 25.70 can favor Turkish Lira pair sellers to challenge the mid-2023 bottom surrounding 23.60.