The USD/TRY exchange rate continued its strong bull run this week as traders waited for the upcoming CBRT decision. It also jumped slightly after the FOMC minutes revealed that officials were a bit cautious about rate cuts. The USD to lira was trading at a record high of 31.05.

The USD/TRY pair will be in the spotlight on Thursday as the CBRT delivers its second interest rate decision of the year. 

Economists polled by Reuters expect the central bank will decide to leave interest rates unchanged at 45%. If this happens, it will be the first time that it has left rates intact since it has been in an extremely hawkish tone since June last year.

In this period, the bank has hiked interest rates from 8.5% to 45% in a bid to fight the stubbornly high inflation. This will be the first decision of the new CBRT governor after the previous one resigned two weeks ago.

Recent data shows that Turkey’s inflation is rising. According to the statistics agency, the headline Consumer Price Index (CPI) jumped from 64.77% in December to 64.86% in December. It now stands at its highest point since 2022. It has almost doubled from its last year’s low of 38.2%.

Other economic numbers have shown that Turkey’s economy is not doing well as the manufacturing PMI has remained below 50. It came in at 49.2 in January, signaling that the sector is contracting as local and international demand wanes. 

The CBRT decision comes a day after the Federal Reserve published minutes of its first monetary policy of the year. These minutes showed that the Fed is concerned about cutting rates so soon since inflation is still stubbornly high.

Economic numbers by the BLS showed that the headline consumer price index (CPI) rose to 3.1% in January. Core inflation rose to 3.8%, almost double the Fed’s target of 2.0%.

Therefore, a combination of a hawkish Fed and high Turkish inflation means that many people in the country are still opting to hoard foreign currencies like the USD and euro.

USD/TRY chart by TradingView

The USD to TRY exchange rate has been in a strong rally in the past few years as actions by the CBRT and the government have failed. It has now crossed the crucial psychological levels at 30 and 31. As a result, it remains much higher than all moving averages.

Oscillators have all moved to the extremely overbought level, with the RSI standing at 85. The Stochastic Oscillator has moved to the overbought point at 78. Therefore, the outlook for the pair is extremely bullish.

However, as we saw with the Kenyan shilling recently, a major lira rebound cannot be ruled out this year. After months of falling, the shilling went parabolic this month, moving from 163 to 140 against the US dollar.

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