USD/TRY forecast: Lira under pressure as Turkish inflation surges

The USD/TRY pair tilted upwards after the latest Turkish consumer inflation data. The pair rose to a high of 14.14, which is the highest it has been since February 24th. It is about 37% above the lowest level in December and about 23% below its all-time high.

Turkey inflation surges

The Turkish economy is between a rock and a hard place. The currency has crashed by more than 100% from its lowest level in 2021 and the cost of goods is rising. 

Data published by the country’s statistics agency showed that the headline consumer inflation jumped to 54.4% in February, the highest it has been in 20 years. This increase was higher than the median estimate of 52.5% and the previous year’s 48.7%.

The situation is even worse when you look at producers. The producer price index rose by 105%, the highest level since 1995. According to the statistics agency, this performance was driven by the overall weak lira and the soaring food and energy prices.

Turkey is an oil importer, meaning that the situation is set to worsen considering that oil and gas prices have risen remarkably in the past few days. Brent, the global benchmark, is approaching $120 per barrel as Western countries consider placing sanctions on the Russian energy sector. Indeed, based on a $80 price per barrel, the CBRT expects that inflation will end the year at about 23.2%.

Therefore, the Central Bank of the Republic of Turkey (CBRT) is in a difficult place. The bank has been adamant that it will not hike interest rates in the near term. To the contrary, some analysts believe that the CBRT will actually slash interest rates again considering that this is an election year.

USD/TRY forecast

The daily chart shows that the USDTRY pair has been in a tight range in the past few weeks. The pair is trading at 14.13, which is slightly above the year-to-date low of 13.27. It is hovering slightly above the 25-day and 50-day moving averages while the MACD is above the current level.

Therefore, there is a likelihood that the Turkish lira will remain being under pressure now that the Federal Reserve has signaled that it will hike interest rates later this month.