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USD/TRY forecast: Turkish lira sits and waits for the CBRT

By: Invezz

The USD to TRY (USD/TRY) exchange rate will be in the spotlight on Thursday as the Central Bank of the Republic of Turkey (CBRT) delivers its interest rate decision. The pair sits at a record high of 32.40, meaning that it has almost doubled from its lowest point in 2023.

CBRT interest rate decision ahead

The USD/TRY pair rose slightly after the Federal Reserve delivered a relatively dovish interest rate decision. 

In a statement, the bank decided to leave interest rates unchanged between 5.25% and 5.50%. On the positive side, the Fed also hinted that it will deliver three rate cuts this year. The dot plot shows the first interest rate cut will happen in June.

The next important USD/TRY news will happen on Thursday when the CBRT delivers its second interest rate decision of the year.

Economists believe that the bank will leave interest rates unchanged at 45% for the third straight meeting. This will happen even as Turkish inflation remains at an elevated level. 

The most recent data showed that the country’s inflation rose to 67% in February, higher than the median estimate of 65.74%. It has risen from a low of 38.5% in June last year and analysts expect that it will keep rising amid a significantly weak Turkish lira. 

The decision comes at a time when analysts are warning that the country’s forex reserves are at a dangerously low level. In a note, analysts at Goldman Sachs noted that the net forex assets accounting for the second leg of its swaps crashed by $6.3 billion to $69.7 billion in March. It has fallen by $24 billion this year. 

Goldman points out that the Turkish central bank is about to lose control as "FX position deteriorates sharply". Is Turkish lira on verge of terminal collapse?

— zerohedge (@zerohedge) March 15, 2024

The other risk for the Turkish lira, as I have written before, is that Turkey’s inflation is much higher than the current interest rates. Inflation came in at 67% while the base interest rate stands at 45%, meaning that there is a spread of 17%. 

The implication is that, all factors constant, anyone who holds the Turkish lira gets a negative return. 

USD/TRY technical analysisUSD/TRY

USDTRY chart by TradingView

In my last article on the Turkish lira, I warned that it had more downward momentum to run. Besides, this is a currency that has crashed in each year in the past few decades. 

On the daily chart above, we see that the pair has remained above all moving averages and the Ichimoku cloud. The Relative Strength Index and other oscillators have also continued rising and are at overbought levels.

Therefore, the pair will likely continue rising gradually, as investors target the key resistance at 32.50. 

The post USD/TRY forecast: Turkish lira sits and waits for the CBRT appeared first on Invezz

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