USDTRY
The U.S. dollar dropped against the Turkish Lira today after a surprise 200 basis point rate increase by the CBRT. I said in my last pound versus Lira article that, “rates could offer a downside bet“.
The Turkish economy has been hit hard by the global drop in tourism and there was also pressure on the banks recently with Moodys downgrading 13 Turkish banks and the country’s economy, which brought the risk of central bank interventions.
Despite the problems in the economy the last inflation print was 11.7% and this brought the risk of a knee-jerk reaction to cool down prices. The bank has raised the interest rate from 8.25% to 10.25%, but it is still much lower than the 25% we saw two years ago when the Lira was stronger against global currencies.
Unlike other global currencies, Turkish policymakers also ruled out an immediate need for further stimulus measures. The CBRT statement said: The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery.
The bounce in the Lira may be the beginning of a larger correction if the current inflationary pressures continue. The central bank has maintained that taming inflation is key to its policy, although it wants to use that for lower long-term rates and the Lira could spike if the country starts to see an inflationary spiral.
The USDTRY has fallen to spike-test the uptrend line from August 18th. Tnis has held so far, but there is a risk of a fall to support at 7.400 with key support at 7.2000-7.3000 where the 50-day moving average rests.
