USD/TRY clings to record high near 26.00 as US holiday joins cautious mood ahead of Turkish inflation

• USD/TRY remains sidelined near all-time high, snaps  three-day downtrend of late.
• Hopes of higher Turkish inflation leading to higher rates from CBRT tease Turkish Lira bears amid sluggish markets.
• Lack of strong rate hikes from CBRT failed to inspire Turkish Lira bulls amid broadly firmer US fundamentals.
• Hawkish signals from CBRT may trigger much-awaited pullback but the US holiday can limit the moves.

USD/TRY snaps a three-day downtrend even as the bulls struggle to print major gains around 25.93 heading into Tuesday’s European session. In doing so, the Turkish Lira (TRY) pair takes clues from the broad US Dollar recovery, as well as justifies fears of easing Turkish inflation, amid the lackluster markets due to the US holiday.

US Dollar Index (DXY) remains mildly bid near 103.00, after struggling the previous day, as downbeat sentiment joins hawkish Fed bets.

That said, the US yield curve inversion flags recession woes as an inversion between the US 10-year and two-year Treasury bond yields jumped to a fresh high since 1981 the previous day. “The yield curve briefly inverted to 42-year lows Monday as investors increasingly expect the Fed to raise its benchmark borrowing rates to keep inflation in check,” said Reuters. That said, the US two-year Treasury bond yields dropped to 4.85% while the 10-year counterpart fell to 3.78%, before ending Monday’s trading around 4.93% and 3.86% respectively.

On a different page, fears of the US-China tussle renew even as US Treasury Secretary Janet Yellen is in Beijing to restore the Sino-American business ties. The reason could be linked to the Wall Street Journal (WSJ) news suggesting “The Biden administration is preparing to restrict Chinese companies’ access to U.S. cloud-computing services, according to people familiar with the situation, in a move that could further strain relations between the world’s economic superpowers.”

Elsewhere, the downbeat US data fails to tame the hawkish Fed bets and challenge the Gold buyers despite the sluggish markets. On Monday, US ISM Manufacturing PMI for June dropped to the lowest level in three years, as well as stayed below the 50.0 level for the seventh consecutive month, as it marked a 46.0 figure versus 47.2 expected and 46.9 prior. Further, S&P Global Manufacturing PMI for June confirmed 46.3 figure, the lowest in five months, whereas the Construction Spending improved 0.9% MoM for May, versus 0.5% expected and 0.4% previous readouts.

At home, the Central Bank of the Republic of Türkiye (CBRT) hiked rates for the first time since August 2021, to 15% from 8.5% versus the 21% expected. However, the lesser-than-expected rate hike disappointed the Turkish Lira (TRY) buyers. That said, The CBRT reiterated its commitment to the 5% inflation target and did not rule out additional monetary tightening measures to achieve this target. However, the USD/TRY refreshed a record high of 24.61 following the CBRT announcements.

Moving on, Turkish Consumer Price Index (CPI) and Producer Price Index ((PPI) for June, scheduled for Wednesday, will be crucial for the Turkish Lira pair traders to watch for short-term directions. Also important will be Wednesday’s Fed minutes and Friday’s US jobs report for June.

Technical analysis

Despite posting the first daily gains in four, the lower-low formation keeps the USD/TRY bears hopeful. However, the Turkish Lira (TRY) sellers need daily closing beyond the latest peak of around 26.09 to keep buyers on the board.