USD/TRY Forecast as the Fed and CBRT Divergence Widens

Summary:
• The USD/TRY price moved sideways on Tuesday morning as investors focused on the growing divergence between the Federal Reserve and the CBRT

The USD/TRY price moved sideways on Tuesday morning as investors focused on the growing divergence between the Federal Reserve and the CBRT. The pair is trading at 18.08, which is a few points below the all-time high of 18.41. It has climbed by76% from the lowest level this year.

CBRT and Fed divergence

The Turkish and American central banks are moving in the opposite direction. Minutes published on Wednesday last week showed that the Fed hopes to continue hiking interest rates in a bid to slow the red hot inflation numbers. 

These minutes were a bit lagging since the meeting happened before the recent US consumer inflation data. The numbers showed that the country’s inflation dropped from 9.1% in July to 8.7% in June. This trend will likely continue since gasoline prices have increased below $4. Still, many Fed officials have reiterated that they will continue hiking rates.

The USD/TRY was also reacting to the latest CBRT decision. The central bank caught many off-guard when it decided to slash interest rates by 100 basis points even as inflation remains at over 70%. As such, there is a high possibility that the country’s official inflation will end the year at about 100%. 

The pair has also risen because of the extremely strong US dollar. The DXY index jumped to $109, the highest point in over a month as global volatility rose.

USD/TRY forecast

In my pre-CBRT preview, I wondered whether the CBRT will save the almost worthless Turkish lira. The bank decided to do the opposite. Now, the USD to TRY exchange rate remains slightly above the 25-day and 50-day moving averages and is slightly below the important resistance at 18.42. The stochastic oscillator moved slightly above the overbought level.

Therefore, the USD/TRY price will likely continue rising as bulls target the next key resistance level at 18.50. A drop below the support at 17.50 will invalidate the bullish view.