The Turkish lira remained at a record low against the US dollar, continuing a trend that has been going on for decades. The USD/TRY exchange rate was trading at 42.4, up by 21% from where it was trading at in January this year.
Turkish inflation drops, raising odds of a CBRT rate cut
The USD/TRY pair has been in a strong uptrend in the past few months, a trend that continued after the statistics agency published its November consumer inflation report.
This data showed that the headline Consumer Price Index dropped from 2.55% in October to 0.87% on a MoM basis, a drop that was lower than the median estimate of 1.25%.
The CPI dropped from 32.87% in October to 31.07% on an annual basis. This decline was also better than the expected 31.6%.
Turkey’s inflation has been in a strong downward trend in the past few months, moving from last November’s high of 47% to 31.07% today. This decline happened even as the central bank delivered several interest rate cuts this year.
The new inflation report means that the Central Bank of the Republic of Turkey (CBRT) will cut interest rates in the coming meeting on December 11.
This rate cut will be necessary as the Turkish economy is struggling, with a recent report showing that the economy grew at a slower pace than expected in the last quarter.
It expanded by 3.7% in Q3, lower than the median estimate of 4.2%. Its quarterly growth rate of 1.1% was slightly better than the median estimate of 0.9%. In a note, a Bloomberg analyst said:
“We expect the central bank to read the overall slowdown in activity as support for its easing cycle, despite the strength over the quarter.”
Federal Reserve to cut rates next week
The USD/TRY exchange rate continued rising as investors waited for the upcoming Federal Reserve interest rate decision, which will happen next week.
Economists polled by Reuters expect the Fed to cut interest rates by 0.25% now that the economic growth has slowed. It will bring the benchmark rate to between 3.50% and 3.75%.
The bank will likely embrace a more dovish tone in 2026 now that Trump has hinted that Kevin Hassett will become the next Fed Chairman. This explains why the US dollar index has softened across the board: ING analysts noted:
“Given perceptions of Hassett as quite dovish, the dollar is a little weaker across the board, the yield curve has seen some modest bullish steepening and risk assets have turned gently bid.”
USD/TRY technical analysis
The daily chart shows that the USD/TRY exchange rate has been in a strong uptrend this year, and is now hovering at its all-time high of 42.55.
It has remained above all moving averages, a sign that bulls remains in control. Also, top oscillators like the Relative Strength Index (RSI) and the MACD have continued rising.
Therefore, the most likely scenario is where the Turkish lira continues its downtrend as traders wait for the CBRT rate cut. Such a move may push it above 43.
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