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  • USD/TRY stays bid albeit below recent all-time highs near 8.55.
  • Investors’ attention gyrates around the Turkish central bank.
  • A Biden win at the US elections increases the chances of sanctions.

The Turkish lira remains on the defensive and motivates USD/TRY to keep business well above the 8.40 mark in the second half of the week.

USD/TRY looks to CBRT, US elections

USD/TRY appears to be consolidating in the upper end of the recent range although below the all-time highs in the proximity of the 8.55 level (November 3).

Despite the sell-off in the Turkish currency seems somewhat mitigated, the pressure on the lira remains far from abated amidst geopolitical concerns (Eastern Mediterranean and the Caucasus), domestic politics and the impact of the pandemic on the economy.

Further out, investors keep monitoring the Turkish central bank (CBRT) searching for clues regarding any action on the interest rates. It is worth noting that consensus among market participants expect the CBRT to eventually deliver at least a 500 bps interest rate hike in order to restore some credibility in both the bank and the lira.

This view however, crashes with the Erdogan’s administration, which largely favours low interest rates as a way to contain inflation (?).

In addition, almost depleted FX reserves, high inflation and negative real interest rates have been all collaborating with the large depreciation of TRY in past months. The outlook for the lira could even darken further when considering the likeliness of US sanctions against Ankara by a probable Biden administration, all following the purchase of the Russian-made S-400 defence system.

The Turkish lira is by far the worst performer currency in the EM FX space, having lost around 30% vs. the dollar so far this year.

USD/TRY key levels

At the moment the pair is gaining 0.35% at 8.4328 and faces the next hurdle at 8.5434 (all-time high Nov.3). On the downside, a drop below 7.7787 (low Oct.22) would expose 7.6294 (monthly low Oct.1) and finally 7.5082 (low Sep.25).