The Turkish lira remained under pressure this week as investors reacted to the country’s inflation numbers and Tuesday’s election in the United States. The USD/TRY exchange rate was trading at its record high of 34.35, bringing its year-to-date gains to 17%.
Turkish inflation data
The USD to TRY pair rose slightly after a report by the Turkish statistics agency showed that inflation continued moving downwards in September.
The headline Consumer Price Index (CPI) dropped from 2.97% in September to 2.88% in October, higher than the median estimate of 2.60%.
It dropped from 49.38% to 48.60%, higher than the expected 48.2%. Core inflation, which excludes the volatile food and energy prices, dropped from 49.1% to 47.8% and 3.6% to 2.8% on a YoY and MoM basis, respectively.
These numbers mean that the Turkish inflation is moving in the right direction since the headline inflation peaked at 70% earlier this year. However, the decline is not as quick as what analysts were expecting.
Therefore, the data mean that the Central Bank of the Republic of Turkey (CBRT) may decide to leave interest rates unchanged for longer than expected.
In its last interest rate meeting, the bank left rates intact at 50%, where they have been for the most part of the year.
On the positive side, the Turkish economy is doing well, helped by the robust tourist sector. The most recent data showed that the country welcomed 35.8 million tourists between January and August, a 7.1% increase from the same period last year. Most of these tourists were from Russia and they were moving to Istanbul.
Turkey’s real estate and manufacturing sectors are also doing well, with companies reporting strong demand, especially from Russians.
Read more: USD/TRY analysis as the Turkish lira nears make or break price
US election and the Fed
The next important USD/TRY news will be the upcoming US general election that will happen on Tuesday.
This will be a notable election because the market is still unsure on who will win, with polls in all swing states being tied.
The predictions market predicts that Trump will win the election. However, this is still a fairly new market and it is unclear whether it will be accurate.
The election will happen a day ahead of the next Federal Reserve delivers its monetary policy. Most analysts expect that the bank will cut interest rates for the second consecutive meeting since inflation has moved in the right direction, while the labor market is under pressure.
The most recent economic data shows that the headline Consumer Price Index (CPI) dropped to 2.4%, while the PCE fell to 2.0%, meaning that the two are moving towards the 2% target.
More data revealed that the unemployment rate remained at 4.1% as the economy created just 12,000 jobs in October.
The USD/TRY has become a popular carry trade as investors borrow the US dollar to invest in Turkish assets, where they are receiving over 50% returns.
USD/TRY technical analysis
USD/TRY chart by TradingView
The daily chart shows that the USD to TRY exchange rate has drifted upwards in the past few months, and is sitting at its all-time high.
This performance happened because investors and Turkish citizens still don’t trust the Turkish central bank. Most of them expect it to eventually cave in and start cutting rates prematurely.
The USD/TRY pair has remained above the 50-day moving average. However, it has formed a rising wedge pattern, pointing to an eventual pullback. If this happens, it could retest the support level at 34 before the year ends. A move above the upper side of the wedge will point to more gains.
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