What’s going on with USD to lira (USD/TRY) as Turkish CPI rises?

The USD to Turkish lira exchange rate held steady on Monday even after the latest Turkish inflation figures missed analysts’ estimates. The USD/TRY pair was trading at 28.93, a few points below the all-time high of 29.2. It has surged by almost 56% from the lowest level in 2023.

Turkey inflation figures

The Turkish lira continued its bullish trend this week after the latest consumer and producer inflation figures. According to the country’s statistics agency, inflation continued rising in November even after the central bank boosted interest rates.

The headline Consumer Price Index (CPI) rose from 61.36% in October to 61.98% in November. This YoY increase was lower than the median estimate of 63%. The CPI dropped from 3.43% to 3.28% on a MoM basis.

Core inflation, which excludes the volatile food and energy prices, rose from 69.8% to 69.9% in November. There is a likelihood that the country’s inflation has peaked now that energy prices are falling globally. 

Meanwhile, the Producer Price Index (PPI) rose from 39.39% in October to 42.25% on a MoM basis and from 1.94% to 2.81% on a MoM basis.

The Central Bank of the Republic of Turkey has been one of the most hawkish banks globally. It hiked interest rates from 35% in October to 40% in November, a bigger increase than the estimated 37.50%. It has boosted them from 8.5% in May to 40% as it fought to stabilise the Turkish lira.

Economists believe that the central bank has some more hikes to deliver if it is serious about fighting inflation. Ideally, interest rates needs to be above the inflation rate if the bank wants to make lira attractive to investors.

For one, Turkey’s 2-year government bonds are yielding about 39.85%, which is much lower than the current inflation rate. As such, people buying these bonds are still losing money to inflation. 

On the positive side, Turkey’s central bank reserves have jumped to a record high of over $136.5 billion. The previous record high was in 2013 when they rose to $135.6 billion. Turkey is benefiting from high exports and booming tourism.

USD/TRY technical analysis

USD/TRY chart by TradingView

The daily chart shows that the USD to TRY price has been in a strong uptrend. Most recently, it has formed a narrow ascending channel, which is shown in blue. The pair has also moved above the 50-day moving average while the Relative Strength Index (RSI) has risen to the overbought level.

Therefore, the pair will likely continue rising as buyers target the key resistance point at 30. A break above this level will validate bulls and see it continue rising to the key point at 31. The alternative scenario is where the pair crashes to the support at 27.37, the highest swing in July.