USD/TRY Outlook:
The outlook is slightly positive, but likely to move sideways, as the rate is above its recent average but lacks a clear driver.
Key drivers:
• Rate gap: The US Federal Reserve has held interest rates steady while the Central Bank of Turkey is cutting rates, leading to a widening yield differential that supports a stronger USD against the TRY.
• Risk/commodities: As oil prices remain elevated, this generally benefits Turkey's economic growth prospects, providing some support to the TRY amid ongoing concerns about external balances.
• One macro factor: Fitch Ratings upgraded Turkey's outlook to positive, reflecting improving foreign exchange reserves and easing external vulnerabilities, which could boost investor confidence in the TRY.
Range:
The USD/TRY is expected to hold its position within the recent range, showing limited volatility.
What could change it:
• Upside risk: A sudden increase in US inflation could lead to revised expectations for Federal Reserve interest rate hikes in the near term.
• Downside risk: Further geopolitical tensions or worsening economic data from Turkey could exert additional pressure on the Turkish lira.
