- USD/TRY struggles to overcome the second consecutive weekly losses.
- Turkish President Erdogan urges to convert foreign currency savings to lira, sees FX- demand driven volatility.
- CBRT is expected to keep benchmark rates unchanged at 14.0% but hints of further rate cuts will be crucial to search.
- US Treasury yields regain upside momentum following a pullback from multi-day top.
USD/TRY seesaws around $13.45 as traders await the key Turkish Central Bank (CBRT) verdict during early Thursday.
The quote dropped the previous day on broad US dollar pullback and comments from Turkish President Recep Tayyip Erdogan. It’s worth noting that the 500 basis points (bps) of rate cuts and huge policy moves battle the strong inflation to test USD/TRY traders ahead of the CBRT Interest Rate Decision.
The US Dollar Index (DXY) reversed from weekly top to snap three-day uptrend the previous day after the Treasury yields dropped after refreshing multi-day high. That said, the US 10-year Treasury yields added 2.2 bps to 1.849% at the latest while nearing the highest levels in two years.
The recent rebound in the US Treasury yields could be linked to the speech from US President Joe Biden who praised Fed Chair Jerome Powell, indirectly signaling favor for hawkish Fed actions. Also fueling the bond coupons were challenges to risk appetite marked in Biden’s speech as he touched various risk-sensitive issues ranging from Russia to China, not to forget the Build Back Better (BBB) stimulus.
Read: US President Biden: Inflation has everything to do with supply chain
It’s worth noting that Turkish President Erdogan spoke at a cabinet meeting on Wednesday while urging citizens and companies to convert their foreign currency savings into the Turkish lira, as Ankara seeks to boost demand for the local currency, per Reuters. The national leader earlier said, “there will no longer be volatility in financial markets caused by unbalanced demand for foreign currency, after the lira currency tumbled 44% in value against the dollar last year.”
Looking forward, CBRT moves will be crucial for the USD/TRY traders as the nation still struggles with record inflation data and Erdogan’s push for more rate cuts.
With this in mind, FXStreet’s Valeria Bednarik says,
The December statement suggests that policymakers will pause the easing cycle and monitor its effects in the coming three months.
Read: CBRT Preview: USD/TRY poised to run at the slightest sign
Technical analysis
While 10-DMA restricts the USD/TRY short-term upside to around $13.56, a descending resistance line from December 21, close to $13.85 by the press time, will be crucial for the pair buyers to watch.
Alternatively, 21-DMA near $13.05 restricts the short-term downside of the pair ahead of the $13.00 threshold.
Overall, USD/TRY fades the recovery moves from late December but a clear break of $13.85 will be a strong bullish cal.