USD/TRY bulls approach the record high above 18.00 as Fed hawks propel DXY

• USD/TRY stays firmer at the yearly top, grinds higher of late.
• A jump in the hawkish Fed bets after Powell’s Jackson Hole speech propels DXY, yields.
• Inflation fears in Turkey, recession woes add strength to the upside momentum.
• Light calendar, holiday in the UK may restrict immediate moves ahead of Friday’s US NFP.

USD/TRY grinds higher around the yearly top, up 0.15% intraday near 18.15 heading into Monday’s European session.

In doing so, the Turkish lira (TRY) pair struggles to keep buyers hopeful even as the quote renews the nine-month high amid a lack of major data/events, as well as the holiday in the UK. Even so, fears of higher inflation in Turkey, as well as the Central Bank of the Republic of Türkiye’s (CBRT) resistance to higher rates, keep the pair buyers hopeful.

It’s worth noting that the 80% inflation couldn’t stop the CBRT policymakers from announcing a 100 basis points (bps) rate cut despite broad criticism of the nation’s qualitative measures to tame inflation.

Elsewhere, Federal Reserve following Chair Jerome Powell's hawkish speech on Friday turned down the market’s hopes of witnessing cautious remarks from Powell, considering the latest challenges to the economic slowdown. Also fueling the US Treasury yields could be the comments from US Senator Elizabeth Warren said on Sunday, per Reuters, that she was very worried that the Federal Reserve was going to tip the US economy into recession.

As a result, the US two-year Treasury yields rise to the highest since 2007, up 2.5% intraday near 3.487% at the latest, whereas the 10-year benchmark adds nearly 10 basis points to 3.129%. Also, market pricing now indicates a 74.5% chance the Fed will hike rates by 75 basis points at its September meeting, per BOE’s FED WATCH tool. It’s worth noting that the US Dollar Index (DXY) also cheers the hawkish Fed bets and firmer yields to rise to the fresh high since September 2002, up 0.50% near 109.45 at the latest.

Although the risk-aversion and the hawkish Fed bets keep the US dollar buyers hopeful, fears surrounding Friday’s US jobs report could join a light calendar in the UK and a light calendar elsewhere to restrict immediate USD/TRY moves.