USD/TRY Forecast: Fed and CBRT Policy Divergence Shapes the Lira Outlook

The USD/TRY exchange rate extended its climb and hit a record high as the US dollar strengthened and investors reacted to the latest Turkish inflation data. The lira’s sell-off gained momentum, pushing the pair to a new peak. The rally will likely continue in the coming months.

Turkish Lira Has Slumped Amid CBRT Rate Cuts

The USD/TRY has been in a strong rally this year, driven by the US dollar’s strength, which continued after the Federal Reserve delivered its interest rate decision. Officials left interest rates unchanged, with two FOMC members voting to hike by 0.25%. Economists now expect the bank to hike rates in the December meeting.

At the same time, the Central Bank of the Republic of Turkey (CBRT) decided to cut interest rates by 0.25% at its last meeting, even as inflation rose. The bank slashed rates by 100 basis points to 36%. It also lowered its overnight lending and borrowing rates by the same amounts to 39% and 34.5%.

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Therefore, these events have led to a widening spread between the US and Turkey, creating a good carry trade opportunity. This gap will likely continue as the CBRT continues cutting interest rates, while the Fed hikes. 

The next important catalyst for the pair will be the upcoming US nonfarm payrolls (NFP) data on Friday. Economists expect the report to show that the economy created 63k jobs last month, with the unemployment rate remaining at 4.2%. A stronger-than-expected jobs report will raise the possibility of the Fed hiking interest rates in the next meeting. 

The pair will also react to the upcoming US consumer inflation report on November 10. This report will provide details about the change in prices in October as gasoline and diesel prices remained at an elevated level. 

USD/TRY Technical Analysis

USDTRY chart | Source: TradingView

The daily chart shows that the USD/TRY pair has been in a strong rally this year, continuing an upward trend that has been going on in years. It has jumped above all moving averages.

The pair has remained above the Supertrend indicator and the Ichimoku cloud indicator. Therefore, the USD to TRY pair will likely continue rising as bulls target the key resistance level of 51. A drop below the 50-day moving average level of 49.15 will invalidate the bullish forecast. 

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