USD/TRY weaker, challenges 2-month lows in sub-7.70 levels

• USD/TRY extends the breakdown of the key 8.00 mark (Wednesday).
• Lira gains keep underpinned by imminent CBRT action.
• Markets’ consensus expects a large interest rate hike next week.

The Turkish lira remains well bid and drags USD/TRY to the proximity of 2-month lows in the 7.67 region on Thursday.

USD/TRY now looks to CBRT

The continuation of the solid march of the Turkish currency seems to confirm the change of heart among investors, particularly after last weekend’s events, including the replacement of the CBRT Governor and the resignation of Finance minister B.Albayrak and Wednesday’s news that the banking regulator (BDDK) now allow access to further lira funding by foreign lenders.

Investors’ stance on the lira have now shifted to bullish pari passu with increasing expectations of an interest rate hike at the CBRT November 19 meeting. Consensus among market participants sees the central bank rising the One-Week Repo Rate by at least 500 bps in order to restore some credibility to the CBRT, the lira and ultimately, the country.

In addition, the upbeat momentum in TRY has been supported further after President R.T.Erdogan said on Wednesday the country is expected to embark on the long-waited, much-needed structural reforms in the near-term. On this, Erdogan announced that Turkey will hold meetings with international investors.

USD/TRY key levels

At the moment the pair is losing 1.05% at 7.7012 and a drop below 7.5082 (low Sep.25) would expose 7.4576 (100-day SMA) and finally 7.3049 (low Aug.21). On the flip side, the next hurdle is located at 8.5777 (all-time high Nov.6)