USD/TRY forecast ahead of the CBRT decision, US inflation data

The USD/TRY exchange rate jumped to a record high last week after Turkey published weak consumer inflation data. It was trading at 41.25, much higher than the January open of 35. This article explains what to expect ahead of the CBRT decision that could impact the carry trade opportunity.

CBRT interest rate decision

The USD/TRY exchange rate continued its strong rally after a report showed that Turkish inflation continued falling in August. A report by the statistics agency showed that the headline consumer price index (CPI) slowed to 33% year-on-year from 33.5% in the previous month.

Turkey’s inflation has been in a downtrend in all months since June 2024, when it jumped to 75%. The ongoing inflation slowdown happened even as the central bank continued cutting interest rates. 

Economists now expect a big interest rate cut when the bank meet on Thursday this week. The average estimate is that the bank will cut rates by 200 basis points, moving them from the current 43% to 41%. 

The overnight borrowing and lending rates at expected to drop to 40% and 44%, respectively. 

These numbers come as the central bank hopes that inflation will continue falling, especially because of the falling oil prices. It also hopes that the cuts will supercharge the economy, which analysts expect will grow by 3.1%.

US inflation data and Fed cuts

The other important catalyst for the USD/TRY will be the upcoming US inflation data, which will come out on Thursday.

Economists polled by Reuters expect the numbers to show that the headline consumer inflation rose to 2.9% in August from 2.7% in the previous month. Some analysts expect the figure to cross the 3% milestone soon. 

This inflation report will provide more information on the state of the American economy and what to expect. However, after the recent US job numbers, economists expect that the Fed will cut interest rates in its coming meeting.

Read more: Why the US job market may actually crumble soon

If this is correct, it means that the central bank will bring the headline consumer inflation figure between 4.00% and 4.25%. 

The implication is that it will lower the spread between the US and Turkish interest rates. Historically, the USD/TRY pair has become one of the most common carry trade pairs. 

A carry trade is a situation where investors borrow from a country with a low interest rate and invest in one with a higher interest rate. In this case, they have been borrowing heavily in the US and invested in Turkish assets.

USD/TRY technical analysis

The daily chart shows that the USD/TRY exchange rate has been in a strong uptrend. It has moved from 33 in September last year to 41.25 today. 

The pair has remained above all moving averages, while its oscillators have moved upwards. Therefore, the pair will likely continue rising bulls target the key resistance point at 42.