USD/TRY: Turkish wildfire weighs on Lira near 27.20 despite sluggish US Dollar, focus on CBRT, Fed’s Powell

• USD/TRY pushes upside boundaries while refreshing record highs in the last few successive days.
• Wildfire pushes Ankara to close key Strait, pausing hundreds of ships and fueling inflation woes.
• US Dollar struggles for clear directions as softer PMIs flag Fed policy pivot concerns but Powell isn’t known dovish.
• CBRT is expected to lift benchmark Interest Rates by 300 bps to 20.00%, any disappointment can fuel USD/TRY.

USD/TRY stays on the front around 27.20 heading into Thursday’s European session. ignoring the lackluster US Dollar amid fresh challenges to the Turkish inflation conditions. Also allowing the Turkish Lira (TRY) pair to stay on the front foot is the consolidation ahead of today’s Central Bank of the Republic of Türkiye (CBRT) Interest Rate Decision.

Wildfires in areas near Turkey’s Dardanelles Strait intensify fears of more supply crunch and the resulting spike in Turkish inflation as authorities are known to have blocked around 300 ships moving between the Black Sea and the Aegean. It’s worth noting that Inflation is the enemy that previously pushed the CBRT to announce a heavy rate hike to 17.0%.

Furthermore, downbeat prints of Turkish Consumer Confidence for August, to 68.30 from 80.1, also weigh on the Lira prices.

On the contrary, the cautious mood ahead of the US Durable Goods Orders and Fed Chair Jerome Powell’s speech at the Kansas Fed’s annual event called the Jackson Hole Symposium seems to restrict immediate moves of the US Dollar. That said, the US Dollar Index (DXY) reversed from the 11-week high the previous day, seesaws around 103.40 by the press time.

While tracing the US Dollar’s declines the previous day, the receding fears of “higher for longer” rates at the top-tier central banks gain major attention.

It’s worth noting the mostly downbeat Purchasing Managers Index (PMI) for August from the top-tier economies, including the US, restored the market’s previous concerns about the central bank policy pivot and weighed on the Greenback.

The preliminary readings of the US S&P Global Manufacturing PMI dropped to 47.0 for August from 49.0 versus 49.3 market forecasts whereas the Services counterpart also edged lower to 51.0, compared to 52.2 expected and 52.3 marked the previous month. With this, the S&P Global Composite PMI for the US eased to 50.4 for the said month from 52.0 prior and the analysts’ estimations. Further, US New Home Sales change rose to 4.4% MoM for July versus -2.5% previous readings. Not only in the US but the first activity readings from the UK, Australia, Eurozone and Germany were all downbeat and challenged the hawkish central bank bias.

Against this backdrop, S&P500 Futures rose half a percent to 4,470 by the press time, after jumping the most in a month the previous day while the US 10-year Treasury bond yields seesaw around 4.20%, pausing a two-day losing streak from the highest level since 2007, following the biggest daily slump in three weeks.

Looking forward, the CBRT Interest Rate Decision will be eyed as the previously slower-than-expected rate hike propelled the USD/TRY prices. Also important will be to watch the US data line and Fed Chair Powell’s defense of the hawkish monetary policy. It’s worth noting that the CBRT is expected to lift the benchmark rates by 300 basis points (bps) to 20.0%.

Technical analysis

Unless providing a daily closing below a five-week-old previous resistance line, now support around 27.10, USD/TRY remains on the way to approach the 30.00 psychological magnet slowly and steadily.