• USD/TRY advances to fresh YTD highs beyond 18.1500.
• Further upside could challenge the all-time peak around 18.25.
• The sentiment around the Turkish lira continues to deteriorate.

Further weakness in the Turkish lira motivates USD/TRY to clinch new 2022 peaks past 18.1500 on Wednesday.

USD/TRY now targets the all-time high near 18.25

USD/TRY keeps the upside bias unabated for the sixth consecutive session so far on Wednesday, always on the back of the relentless rally in the US dollar and the persistent offered tone in the lira.

In fact, while expectations of extra Fed’s tightening continue to fortify the buying interest in the dollar, the Turkish currency keeps suffering the unexpected reduction of the policy rate by the Turkish central bank (CBRT) last week against the backdrop of the utter absence of measures to tackle the rampant inflation in the country.

It is worth remembering that inflation in Türkiye ran at the fastest pace since 1998 at nearly 80% YoY in July.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and now targets the all-time high around 18.25 following the unexpected interest rate cut by the CBRT on August 18.

In the meantime, the lira’s price action is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July), real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent. In addition, there seems to be no Plan B to attract foreign currency in a context where the country’s FX reserves dwindle by the day.

Key events in Türkiye this week: Capacity Utilization, Manufacturing Confidence (Thursday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.32% at 18.1557 and faces the immediate target at 18.1582 (2022 high August 24) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.7586 (monthly low August 9) would pave the way for 17.4896 (55-day SMA) and finally 17.1903 (weekly low July 15).