Another day, another record low of the Turkish currency vs. the US Dollar, this time sending USD/TRY to the 25.70 region on Friday. USD/TRY extends further the monthly needle-like upside and surpasses the 25.00 barrier, as investors remain highly skeptical after Thursday’s rate hike by the Turkish central bank (CBRT) fell short of investors’ expectations. Indeed, the CBRT hike the One-Week Repo Rate by 650 bps to 15% on Thursday (vs. consensus for a move to 20%) in what was the first rate raise since the summer of 2021. From its statement, the central bank's objective was to initiate the process of monetary tightening, establish a trajectory towards lower inflation, stabilize inflation expectations, and manage pricing behavior. The CBRT reaffirmed its commitment to the 5% inflation target and did not rule out the possibility of implementing additional measures for monetary tightening to achieve this target.

USD/TRY extends the rally on the back of the persistent selling bias in the Turkish currency. In the meantime, investors are expected to closely monitor upcoming decisions on monetary policy. By appointing Mehmet Simsek and Hafize Gaye Erkan, both former Wall Street bankers, to oversee the country's finances, President R. T. Erdogan seems to suggest a possible move away from heavy state intervention in favor of letting the market dictate the fair value of the currency. Although it remains uncertain whether Mr. Erdogan's preference for combating inflation through lower interest rates will allow Simsek and Erkan's orthodox approach to monetary policy to thrive, the news of their appointment has been so far welcomed with high skepticism by market participants. In a broader sense, price action around the Turkish currency is expected to continue to revolve around the performance of energy and commodity prices, which are directly tied to developments from the Ukraine conflict, broad risk appetite trends, and dollar dynamics. So far, the pair is gaining 1.05% at 25.0662 and faces the next hurdle at 25.7273 (all-time high June 23) followed by 26.00 (round level). On the downside, a break below 20.6567 (55-day SMA) would expose 19.8867 (100-day SMA) and finally 19.2464 (200-day SMA).