turkey

USD/TRY: Turkish lira pressured by rising US bond yields

Written by
Updated on Aug 13, 2024
Reading time 3 minutes
  • The USD/TRY has risen to the highest level since January.
  • This is mostly because of the rising US bond yields.
  • Rising Turkish inflation could pressure the CBRT to hike rates.

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The USD/TRY is little changed as the sell-off of emerging market (EM) currencies accelerates. It is trading at 7.4387, which is a few points below this week’s high of 7.5145.

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Turkish lira chart

Turkish lira pressured

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The Turkish lira has been under pressure in the past few weeks. It has dropped by more than 8% from mid last month. Other emerging market currencies like the South African rand, Mexican peso, and Brazilian real have sold-off.

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This performance is mostly because of the global bond market. In the past few weeks, the yield of US government bonds has risen as investors start pricing-in a faster economic recovery.

MSCI emerging market currencies index

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Furthermore, the government is accelerating its vaccination process and a new stimulus package will be voted soon. As a result, the Fed could be forced to start tightening sooner than expected. In its previous interest rate decisions, the bank has hinted that its easing will continue for two to three years.

The rising bond yields has changed the market sentiment from risk-on to risk-off. In fact, many risk assets like tech companies, cryptocurrencies, and emerging market currencies have sold-off.

The USD/TRY has also risen as investors in forex question the next actions by the Turkish Central Bank. The bank has not hiked or lowered interest rates in the past two consecutive meetings. With inflation rising, the CBRT could find itself being under pressure.

Yesterday, data by the Turkish statistics agency said that the headline consumer price index increased from 14.97% in January to 15.61% in February. This was better than what analysts were expecting. Further, the producer price index (PPI) increased from 26.16% to 27.09%. This increase was also better than estimates. This trend will likely continue as the price of crude oil continues to rise. In a note, analysts at ING wrote:

“Inflation will likely peak in April though upside risks continue given the likely recovery in demand conditions in certain groups, the impact of rising international commodity prices, the possibility of tax adjustments and still high inflation expectations.”

USD/TRY analysis

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USD/TRY chart

The USD/TRY has been on an upward trend in the past few days. On the four-hour chart, this price action is being supported by the 25-period and 15-period exponential moving averages (EMA). Also, the Relative Strength Index (RSI) has been rising. Therefore, the pair may continue rallying as bulls attempt to test the next resistance at 7.600.

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