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• Turkey’s statistics agency will publish its interest rate decision on Monday.
• Economists expect the data to show that the headline CPI surged to 74.80% in May.
• The Turkish Central Bank expects the inflation rate to fall to 38% by year end.

The USD/TRY exchange rate remained in a tight range on Monday as investors brace for another strong Turkish inflation report. The pair was trading at 32.21, where it has been stuck at in the past few days. This price is a few pips below the year-to-date high of 32.8.
 

Turkish inflation data

The USD/TRY pair will be in the spotlight as the Turkish statistics agency publishes the latest consumer inflation data. Economists polled by Reuters expect that the annualised inflation rate continued soaring in May.

The median estimate is that the CPI rose from 69.80% in April to 74.80% in May, its highest point in yeas. On a monthly basis, the analysts believe that the headline CPI slowed from 3.18% to 3.0%

These numbers will come a few weeks after the Central Bank of Turkey (CBT) boosted its year-end inflation target. The officials expect that the annual CPI will end the year at 38%, higher than the previous estimate of 36%.

Most economists believe that May was the peak annual inflation for the country. Those polled by Reuters believe that annual inflation will fall by 10% in July and August. They also believe that the CBT’s target of 38% inflation is highly ambitious. In a statement, Selva Bahar Baziki of Bloomberg said:

 

“Our baseline view sees the central bank maintaining its policy rate at 50% through the third quarter of this year, with any threats to the inflation path managed by the tightening of its alternative tools. We expect the central bank to start trimming rates in the fourth quarter.”

Rate cuts by the CBT in a time of double inflation rates will be bearish for the Turkish lira. Ideally, central banks slash interest rates when inflation is either falling or has been contained. 
 

USD/TRY technical analysis

(Click on image to enlarge)

USD/TRY chart by TradingView

The USD/TRY exchange rate was stuck in a tight range on Monday as traders focused on the upcoming Turkish inflation data. It was trading at 32.21, a few points below the year-to-date high of 32.81.

The pair’s Average True Range (ATR) indicator has dropped to 0.20, signalling that its volatility has dried up. Also, the Relative Strength Index (RSI) has moved below the neutral point of 50, which is a sign of a lack of momentum.

Therefore, the pair will likely remain in this range in the next few days as traders wait for the US non-farm payrolls (NFP) data. The key support and resistance levels to watch will be at 31.50 and 32.81.

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