Bias: Bearish-to-range-bound, as the TRY is below the 90-day average and in the lower half of the 3-month range.
Key drivers:
• Rate gap: The Central Bank of Turkey's recent rate cut is contributing to a wider interest rate difference compared to the Federal Reserve's tightening stance.
• Risk/commodities: Oil prices remain volatile, negatively impacting the Turkish economy given its reliance on energy imports, which can further weaken the lira.
• Inflation trends: Turkey's inflation has risen substantially, driven by food prices and supply disruptions, which are expected to keep pressure on the lira.
Range: The TRY/USD is likely to drift within its recent range, struggling to break above the current levels.
What could change it:
• Upside risk: A more aggressive monetary policy response from the Central Bank of Turkey could support the lira.
• Downside risk: Continued increases in US interest rates would strengthen the USD further against the TRY.
