USD/TRY remains offered above 18.00 and continues to target 2022 highs

• The USD/TRY pair adds to Monday’s gains and touches 18.22 again.
• The strengthening of the dollar puts the pair under upward pressure.
• The CBRT will decide on interest rates on September 22.

The persistent buying bias around the dollar pushes the USD/TRY back to the 18.22 zone on Tuesday.

USD/TRY rises thanks to dollar buying, with an eye on the CBRT

USD/TRY extends the auspicious start to the week and trades back within striking distance of all-time highs around 18.25 on Tuesday. The bullish tone of the USD continues to put the EM risk complex and currency space under persistent pressure, always underpinned by strong Fed tightening prospects.

The lira, for its part, depreciated further after inflation figures in Turkey in August recorded the highest rate since September 1998, just above 80.0% year-on-year.

However, the positive news for the lira came after Turkey’s Medium Term Program (MTP) now forecasts a decline in consumer prices in the coming years to levels below 10.0% in 2025.

The MTP also expects the economy to expand by 5% next year and by 5.5% in 2024 and 2025. Notably, Turkey’s economy expanded the most in the G-20 in the second quarter, trailing only Saudi Arabia.

Turkish Economy Minister N. Nebati commented on the program and stressed that the policies aim to ensure high value-added production, continuous improvement of the current account, productivity and increased exports.

Now that the inflation figures have been released, investors’ attention is expected to turn to the upcoming monetary policy meeting of the Turkish central bank (CBRT).

What to keep in mind around the TRY

USD/TRY flirted with all-time highs around 18.25 last Friday, maintaining the uptrend and entering positive territory for the ninth month in a row.

Meanwhile, price action around the Turkish lira is expected to continue to oscillate around developments in energy and commodity prices – which are directly correlated to developments in the war in Ukraine -, general trends in risk appetite and the trajectory of 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 well entrenched in negative and political pressure for the CBRT to go for low interest rates remains pervasive.

In addition, there seems to be no immediate option to attract foreign exchange other than through tourism income, in a context in which the official figures of the country’s foreign exchange reserves continue to be surrounded by growing skepticism.

Technical levels

So far the pair is gaining 0.09% at 18.2235 and faces the immediate target of 18.2574 (2nd Sep high) seconded by 18.2582 (20th Dec all-time high) and then 19.00 (round level). On the other hand, a break of 17.7586 (monthly low Aug 9) would pave the way to 17.6435 (55-day SMA) and eventually 17.1903 (weekly low Jul 15).