Forex world

March 23, 2023

USD/TRY pares post-Fed losses to around 19.00

- USD/TRY picks up bids to pare Fed-induced losses ahead of CBRT Interest Rate Decision.

- Fed’s dovish hike, banking sector rout weigh on yields and US Dollar but hopes of CBRT inaction prod pair bears.

- Turkish Consumer Confidence for March may offer immediate directions.

- Central Bank of the Republic of Türkiye is expected to hold benchmark rate unchanged at 8.5%.

USD/TRY prints mild gains around 19.05 as it consolidates the Federal Reserve (Fed) induced losses ahead of the monetary policy announcement of the Central Bank of the Republic of Türkiye (CBRT). In doing so, the Turkish Lira (TRY) pair struggles to justify the latest fall of the US Dollar, as well as the Treasury bond yields, amid dovish hopes from the Turkish central bank.

CBRT is expected to keep the benchmark rate unchanged at 8.5%, following the 50 basis points (bps) rate cut in the last monetary policy meeting, as Turkish inflation eases for the fourth consecutive month. That said, the Turkish Consumer Price Index (CPI) for February dropped to 55.18% YoY at the latest, versus 55.50% expected and 57.68% prior. It should be noted that the CBRT resisted rate hikes even when inflation jumped to a record high of 85.51 in October.

On the other hand, Fed confirmed the market’s expectations of announcing a 0.25% rate hike but failed to convince the policy hawks and drowned the yields, as well as the US Dollar. The reason could be linked to the statements saying, “Some additional policy firming may be appropriate,” instead of previous remarks like “Ongoing increases in the target range will be appropriate.”

Also weighing on the US Treasury bond yields and the US Dollar are comments from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen. Fed’s Powell said that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears but failed to last long. Further, US Treasury Secretary Janet Yellen ruled out considering “blanket insurance” for bank deposits. Recently, Bloomberg also came out with the news suggesting that the Federal Deposit Insurance Corporation (FDIC) is said to delay the bid deadline for a Silicon Valley private bank.

Amid these plays, US 10-year and two-year Treasury bond yields stay pressured around 3.46% and 3.89% at the latest, licking their wounds after falling the most in a week whereas the US Dollar Index (DXY) renews a seven-week low near 102.00.

However, Citibank CEO Jane Fraser’s efforts to placate market fears seem to have allowed bears to take a breather as she said, “This is not a credit crisis. This is a situation where it's a few banks," per Bloomberg. It should be noted that multiple central bank officials have also tried their hands to rule out fears of the 2008 crisis earlier but have failed so far. However, their swift reaction to the fallouts of the Silicon Valley Bank (SVB), Signature Bank and Credit Suisse gains applause and pushes back the odds of the market’s collapse.

Looking ahead, Turkish Consumer Confidence for March, prior 82.5, could act as immediate direction ahead of the CBRT verdict. That said, USD/TRY is likely to remain pressured unless the CBRT surprises market with a rate hike, which is least expected.

Technical analysis

Unless breaking the 100-DMA support, around 18.75 by the press time, USD/TRY remains capable of refreshing the all-time high. In doing so, the Turkish Lira (TRY) pair could aim for the one-month-old ascending resistance line of around 19.20.

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