Unwillingness Of The Central Bank Of The Republic of Türkiye’s (CBRT) To Increase The Benchmark Interest Rates Is A Challenge For Lira (TRY)

• USD/TRY grinds higher around all-time peak amid mixed concerns.
• Turkish inflation problem versus CBRT’s resistance for rate hike propels the prices.
• Sluggish yields and indecision over Fed’s move from December challenge buyers.
• Wednesday’s FOMC, Thursday’s Turkish CPI will be crucial for near-term directions.

USD/TRY bulls keep the reins around the all-time high of 18.65, near 18.60 by the press time of early Wednesday morning in Europe. In doing so, the Turkish lira (TRY) pair fails to cheer the broad US dollar weakness amid fears of more pain for the TRY.

The fundamental challenge for the TRY could be linked to the Central Bank of the Republic of Türkiye’s (CBRT) hesitance to increase the benchmark interest rates even as the Turkish Consumer Price Index (CPI) refreshed an all-time high of 83.45 in September. It’s worth noting that the inflation number is expected to new the record top with the 85.6% figure for October, expected to be released on Thursday.

It should be noted that the successive eighth monthly fall in the Turkish factory activity in October adds strength to the USD/TRY upside. On the same line were the US JOLTS Job Openings which increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

Alternatively, headlines from China appeared to have recently favored the market’s sentiment amid sluggish US Treasury yields, which in turn probes the USD/TRY bulls. The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".

The US 10-year Treasury yields remain sidelined near 4.05% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.

To sum up, USD/TRY remains on the bull’s radar ahead of the top-tier data/events.

Technical analysis

Although the 19.00 threshold restricts short-term USD/TRY upside, sellers remain absent unless witnessing a clear downside break of the fortnight-long support line near 18.50.