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The combination of a friendly global environment for EM FX and relatively elevated real rates helped to keep USD/TRY upside in check in recent weeks. While these factors may allow the pair to remain below its all-time high (8.58) for now, the possibility of an upward repricing remains very much on the cards. Economists at Credit Suisse stay neutral from a trading perspective. The 8.70-8.80 area is marked as a possible target in case markets start to price in meaningful rate cuts.

Turkish lira, fragile stability

“We have been arguing in recent weeks that a break in USD/TRY above the all-time high of 8.58 is likely in the course of this quarter. We stick to this view.”

“Judging by previous rounds of TRY-weakness we now mark the 8.70-8.80 area as a short to medium-term target which USD/TRY is likely to rise. But for now we acknowledge the possibility that /stays below 8.58 and even within its May range (i.e. 8.20-8.51).”  

“From a short-term perspective one possible catalyst for a break higher in USD/TRY could be a low CPI print next week (3 June) as it might shift markets expectations for rate cuts from a very benign point. Currently, rate markets price in less than 10bps of rate cuts over the next two meetings (17 June and 14 July). Arguably, the uncertainty that a low enough CPI print would create about the policy rate outlook will outweigh the fact that real rates rise initially.”