USD/TRY path of least resistance is lower after the CBRT decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jan 21, 2021
  • The USD/TRY pair dropped today after the CBRT interest rate decision.
  • The bank left interest rates unchanged as most analysts were expecting.
  • The weaker US dollar has also contributed.

The USD/TRY dropped as investors in forex reacted to the first Turkish central bank interest rate decision of the year. It is trading at 7.3825, which is substantially lower than the year-to-date high of 7.5397. The GBP/TRY and EUR/TRY have dropped to 10.13 and 8.97, respectively. 

USD/TRY
USD/TRY YTD performance

Turkish Central Bank decision

The Turkish Central Bank concluded its monthly monetary policy meeting and left interest rates unchanged. The bank left the one-week repo rate at 17.00% and the overnight borrowing and lending rates at 15.5% and 18.50%, respectively. 

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The bank had previously hiked interest rates in November and December to halt the steep sell-off of the Turkish lira. This was the third meeting by Naci Agbal, the new governor of the central bank. In his tenure, the lira has jumped by more than 8% against the dollar.

While most analysts were expecting the bank to leave rates unchanged, those at Societe Generale and Morgan Stanley took a contrary opinion. According to Bloomberg, their models were forecasting a 0.50% and 1% rate cut. 

Still, when you adjust for inflation, Turkey has among the lowest interest rates in the world. The only major country with a lower rate is Malaysia, whose rate is at 3.5%. 

Dollar weakness

The USD/TRY is also falling because of the overall weaker US dollar. The dollar index is off by more than 0.25% today, accelerating the losses that started early this week. 

The reason for this performance is that the new Biden administration is committed to providing supersized stimulus to support the economy. He has already suggested a $1.9 trillion package and more will come in the form of increased spending. 

The dollar is down by more than 0.50% against the British pound and by 0.30% against the Swiss franc. It has also fallen by 0.25% against the Swedish krona and Japanese yen.

Earlier today, the Bank of Japan, Norges Bank, and the Brazilian central bank also left rates intact.

USD/TRY technical outlook

USD/TRY
USD/TRY technical chart

The USD/TRY formed a relatively small double-top pattern at 7.53 this week, as you can see on the four-hour chart. It has also moved below the 25-day and 50-day exponential moving averages. The current consolidation can also be seen as a bearish flag. Therefore, the path of least resistance for the pair is lower.

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