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USD/TRY Defies DXY Decline To Max Out Around 18.50 On CBRT Hints

USD/TRY ignores the US dollar’s decline to maintain its lead and retest the record high at 18.48 ahead of Tuesday’s European trading session. The Turkish Lira (TRY) seems to applaud these indications of more rate reduction from the Central Bank of the Republic of Türkiye (CBRT).

According to Reuters, a CBRT official document released on Monday mentions that Turkey’s central bank dropped its reference interest rate for October by over 140 basis points to 13.96% to slash rates on business loans significantly. According to the news, the central bank announced additional mandated bond holdings for lenders last month to narrow the growing gap between the bank’s policy rate and lending rates.

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Due to the CBRT’s opposition to rate increases, the country’s inflation rate is now close to 80%, and there is also significant geopolitical unrest. However, the central banks‘ most recent actions have weakened the TRY.

Conversely, as lower yields combine harmful US data and inflation predictions, the US Dollar Index (DXY) retreats from the 20-year high, down 0.45% intraday, around 113.60 by press time.

While the S&P 500 Futures also show modest advances at the time of press, US Treasury yields are declining from their multi-year high. However, when traders flocked to the risk-free side, US 10-year Treasury rates increased to their highest levels in 12 years, while 2-year bond coupons refilled the 15-year high.

In addition, the Chicago Fed National Activity Index declined to 0.0 in August from 0.09 expected by the market and a previously corrected reading of 0.29.

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According to statistics from the St. Louis Federal Reserve (FRED), the US inflation forecasts for the 10-year and 5-year breakeven inflation rates indicated that the gauges had risen from their multi-day low on Monday. Taking note of the specifics, the 5-year benchmark fell to its lowest levels since June 2021, while longer-term inflation expectations fell to their lowest levels since July 13, 2022, with the most recent readings being 2.32% and 2.33%, respectively.

Given Turkey’s inherent disadvantage compared to the US, the USD/TRY pair may continue to rise. To guide short-term decisions, the US CB Consumer Confidence for September and Durable Goods Orders for August will accompany today’s address by Fed Chair Jerome Powell.

Technical Analysis

Around 18.50, a two-month-old rising resistance line presents a challenge to USD/TRY bulls due to overbought RSI circumstances. However, barring breaching an upward sloping trend line support at 18.28, the predicted downward movements remain difficult.

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