USD/TRY forecast: Lira rises ahead of the Turkish Central Bank decision

The Turkish lira rose slightly this week as traders waited for the upcoming CBRT interest rate decision, as the crisis in the Middle East continued. The USD/TRY exchange rate retreated to 44 from the year-to-date high of 44.10.

Turkish Central Bank interest rate decision 

The Central Bank of the Republic of Turkey (CBRT) will be in the spotlight this week as it delivers its interest rate decision.

This decision comes as the country comes in the spotlight as a crisis in the Middle East continues. For example, NATO officials have downed several Iranian drones.

The next important for the USD/TRY exchange rate will come out on Thursday when the CBRT publishes its interest rate decision.

Economists polled by Reuters expect the bank to maintain interest rates unchanged at 37%. It will also leave the overnight borrowing and lending rates unchanged at 35.5% and 40%, respectively.

The most recent data showed that Turkey’s inflation rose slightly in February, a trend that may continue in the coming months because of the crisis in the Middle East. The headline Consumer Price Index (CPI) rose to 31.53% in February from 30.6% in January.

On the positive side, core inflation, which excludes the volatile food and energy prices, dropped to 29.4% in February from the previous 29.8%. Inflation may remain high now that the ongoing war has pushed energy prices higher around the world.

Turkey’s unemployment rate jumped in January, moving from a record low of 7.8% in December to 8.1%. This happened as the number of the unemployed fell by 73,000 to 2.82 million.

Turkey’s GDP also slowed down in the fourth quarter. It expanded by just 0.4% from the previous 1%. Analysts still expect that the central bank will cut rates later this year, especially if the headline inflation continues falling.

The other key catalyst for the USD/TRY exchange rate will be the upcoming US consumer inflation report, which will come out on Wednesday.

Economists expect the upcoming report to show that the headline Consumer Price Index (CPI) rose 2.4% in February as the core inflation rose by 2.5%.

There are concerns that the US economy has moved into a stagflation, which happens when inflation is rising as economic growth slows. Inflation will likely remain above the Federal Reserve’s target of 2.0%, while the labor market weakness has accelerated. A report released on Friday showed that the economy shed over 92,000 jobs in February.

USD/TRY technical analysis 

The daily timeframe chart shows that the USD  to TRY exchange rate has continued rising this year. It jumped to a record high of 44.10 this month and then pulled back to 44 this month.

The pair remains above all moving averages, while the Relative Strength Index (RSI) and the MACD indicators have continued rising, moving to the overbought level.

Therefore, the pair will likely resume the uptrend and potentially reach its key target level at 45.