USD/TRY to break below 7.45 on prospects of a rate hike – Credit Suisse

Economists at Credit Suisse currently see a relatively wide range of possible outcomes for USD/TRY in the run-up to the central bank’s meeting on Thursday, March 18. A sustained break below 7.45 requires a clear signal from the central bank to the effect that a rate hike is on the cards.

Key quotes

“Absence of central bank’s communication that would lead markets to expect a rate hike next week will probably prevent a sustained decline below the 7.45 area.”

“USD/TRY could well spike above Monday’s high (of around 7.78) if at the same time real rates in the US once again rise sharply, as they did on Thursday last week (4 March). At extreme, in this TRY-negative scenario markets will likely eye late-November high of 8.04-8.05.”  

“A strong signal from the central bank to the effect that it is likely to raise the policy rate next week could see USD/TRY fall back to the 7.30-7.40 area – especially if markets are given a reason to price in the possibility of a relatively sizable rate hike (e.g. 200bps or more).”  

“Our underlying assumption is that an extended stabilisation in the BBDXY and US real rates alone would not create meaningful downside pressure on USD/TRY.”