USD/TRY Forecast: USD to lira outlook as inflation surges

The Turkish lira continued its bearish trend on Monday after the latest consumer inflation data. The USD/TRY price jumped to a high of 16.82, which is the highest it has been since June 27th of this year. It has risen by almost 5% from its lowest level last week.

Turkey inflation surge

The USD to TRY price continued its bullish trend as investors waited for the latest Turkey inflation data. According to the country’s statistics agency, the headline consumer price index (CPI) rose from 2.98% in May to 4.95% in June as the cost of food and energy surged. 

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This increase translated to a multi-decade high of 78.62%, which was better than the median estimate of 78.35%. The increase was higher than the previous month’s increase of 73.50%. These numbers mean that Turkey has the highest inflation rate among comparable emerging markets like South Africa and Mexico.

Meanwhile, producers are paying more for their products. The headline producer price index (PPI) data rose from 132.1% to 138.31% on a year-on-year basis. This is the highest the rate of producer inflation has jumped ever. On an MoM basis, the PPI dropped from 8.76% to 6.77%.

These numbers will then put pressure on the Central Bank of the Republic of Turkey (CBRT). The central bank went against the grain last year and decided to slash interest rates even as inflation rose. It lowered its key interest rate from 20% to the current 14%. Unlike other central banks, it has not hiked rates this year.

The USD/TRY price is rising since the government’s strategies to stabilise the currency have failed. Last week, they unveiled measures to limit large companies from holding foreign currency. And last year, the government unveiled measures to compensate people for inflation.

USD/TRY price forecast

The four-hour chart shows that the USD to TRY exchange rate declined sharply last week after the government announced new measures to support the lira. It has bounced back and formed a bullish flag pattern that is shown in black.

At the same time, the pair has moved between the 25-day and 50-day moving averages while oscillators are pointing upwards. Therefore, the pair will likely continue rising as bulls target the next key resistance at 17.50. However, there is a possibility that it will resume the bearish trend if the CBRT changes its mind on rate hikes.