USD/TRY: Lira slides as strong inflation shifts focus to new CBRT governor

The USD/TRY price rose slightly after the relatively strong Turkish inflation numbers and as talk of reflation continue. It rose to 8.2070, which is slightly above last week’s low of 7.9915.

Turkish inflation keeps rising

Turkey has been in the spotlight recently as investors wait for the next actions by the new Central Bank governor. In a report today, the country’s statistics agency said that the consumer price index (CPI) rose from 0.91% in February to 1.08%. 

This increase led to a year-on-year gain of 16.19%, which was slightly higher than the previous 15.61%. Analysts were expecting the data to show that the prices rose to 16.11%. At the peak of the pandemic, the CPI was at 8.55%.

Meanwhile, higher oil prices have moved the producer price index (PPI) from 1.22% to 4.13%. On a YoY basis, the PPI rose from 27.09% to 31.20%. Last year, this figure dropped to 1.7%.

Forex traders are paying a close attention to the Turkish inflation data because of the recent decision by Recep Erdogan. In March, he surprised the market when he fired the respected Central Bank governor, Naci Agbal, who had brought confidence to the lira. 

Typically, central banks hike interest rates to slow inflation. However, Erdogan and the new Central Bank governor believe that higher rates lead to a higher inflation rate. Therefore, traders will be watching for his first CBRTY meeting later this month.

The USD/TRY is also reacting to the reflation trade where the dollar has strengthened against other key currencies. This happened after the US published strong employment numbers, leading many analysts to start pricing in faster interest rate hikes by the Federal Reserve.

USD/TRY technical outlook

The four-hour chart shows that the USD/TRY pair rallied by more than 15% in a single day after the decision by Erdogan to fire the respected governor. After paring some of those gains, the price has started to move back up after the latest strong inflation numbers. The price is still above the 25-day and 15-day moving averages. It is also along the standard pivot point. 

Therefore, the pair may keep rising as bulls target the first resistance at 8.4100. This prediction will be invalidated if the price moves below the first support at 7.9520.