USD/TRY forecast as Turkish inflation puts pressure on CBRT

The USD/TRY pair was little changed after a surprise increase in Turkish inflation. The pair is trading at 8.6813, which is in the same range it has been in the past few days. It is about 1.5% below its all-time high. 

Turkish inflation

The Turkish consumer price index (CPI) rose at a faster rate than expected as the economy continued to recover. According to the country’s statistics office, the headline Consumer Price Index (CPI) rose from 0.89% in May to 1.94% in June. Economists polled by Reuters were expecting the data to show that inflation rose by 1.50%. 

The Turkish CPI rose by 17.53% on a year-on-year basis, better than the median estimate of 17.0%. It was also higher than the previous increase of 16.59%. This trend will likely continue in July since the country has increased the cost of electricity by about 15%.

Meanwhile, the country’s producer price index (PPI) rose from 3.92% in May to 4.01% in June. It rose from 38.33% to 42.89% on a year-on-year basis. This increase shows that the gap between the PPI and CPI is widening, raising concerns about the profitability of the country’s companies. Further, food inflation rose by 20%, which is higher than the Turkish Central Bank target of 13%.

The new Turkish inflation data puts pressure on the country’s central bank. Higher inflation means that the bank will find it difficult to cut interest rates as Recep Erdogan has requested. The country’s central bank has not cut interest rates during the current governor’s reign. As such, there is a risk that the president could fire the governor and install one who is ready to slash rates. The bank will meet in the next two weeks.

The USD/TRY is also reacting to the recent US non-farm payrolls data. The numbers showed that the economy added more than 850k jobs while the unemployment rate rose to 5.9%.

USD/TRY technical analysis

The four-hour chart shows that the USD/TRY has been in a tight range recently. As a result, it has formed a symmetrical triangle pattern that is shown in blue. It is also along the 25-day and 15-day exponential moving average (EMA). The pair is also below the important double-top at 8.8025. Therefore, the pair will likely break out soon since the triangle pattern is nearing its confluence zone. Because of the double-top, there is a possibility that it will break out lower.