USD/TRY jumps to new 2022 highs above 18.00 after CBRT cut rates

• USD/TRY hits a new all-time high beyond 18.00.
• The pair is now heading for the all-time high of 18.25 (December 20, 2021).
• The Turkish central bank cut the official interest rate by 100 basis points.

The Turkish lira weakens to new lows against the dollar and makes the USD/TRY break above the 18.00 level for the first time since December 2021.

USD/TRY is now targeting the all-time high of 18.25

USD/TRY breaks past the key 18.00 barrier after the Central Bank of Turkey (CBRT) caught markets off guard and cut the one-week repo rate by one point to 13.00 %, at their meeting on Thursday.

In its statement, the CBRT continues to believe that national inflation is largely driven by rising energy costs, due solely to geopolitical events and “the effects of price formations that are not supported by economic fundamentals.” “.

In addition, according to the bank’s statement, it is expected that the disinflationary process will begin in response to the measures adopted… what would they be?

In line with previous meetings, the “liraization” strategy remains the path to achieving a permanent drop in inflation to the bank’s target of 5%, which the CBRT expects to hit sometime in the second half of 2023. If we have Bearing in mind that inflation stood at almost 80% year-on-year in July and that the CBRT expects the CPI to reach 70% by the end of the year, reaching that goal is still a chimera in the current context.

It is worth noting that the USD/TRY closed with gains in all months of the current year. Since January 2021, the pair posted monthly losses only four times: January, July, August and December of that year.

What to keep in mind around TRY

USD/TRY’s bullish bias remains unchanged and is now targeting the all-time high around 18.25 following the recent unexpected move by CBRT.

Meanwhile, the lira is expected to continue oscillating around developments in energy and commodity prices – which are directly correlated to the events of the war in Ukraine – general trends in appetite for risk and the path of the Fed rates in the coming months.

Additional risks facing the Turkish currency also come from within, as inflation shows no signs of abating (despite rising less than expected in July), real interest rates remain entrenched in negatives and political pressure for the CBRT to go for low interest rates remains pervasive. In addition, there does not seem to be a plan B to attract foreign exchange in a context in which the country’s foreign exchange reserves are decreasing day by day.

Technical levels

So far the pair is gaining 0.81% at 18.0856 and faces the immediate target of 18.1260 (18th Aug 2022 high) seconded by 18.2582 (20th Dec all-time high) and then 19.00 (round level). On the other hand, a break of 17.1903 (weekly low Jul 15) would pave the way towards 16.4104 (100-day SMA) and eventually 16.0365 (monthly low Jun 27).