(16 OCTOBER 2018)DAILY MARKET BRIEF 2:Turkish lira (slowly) gains investors' support

Even after raising interest rates during its MPC (Monetary Policy Committee) on 13 September, the CBRT (Central Bank of Turkey) failed to convince market participants sufficiently. Key issues relating to spreading inflation, shown by the September CPI (Consumer Price Index) at 24.52% on a yearly basis (m/m: +10.88%) and expected to head above 25% by year end, along with the question of the independence of the CBRT, have put constant pressure on the Turkish lira. But the trend appears to be changing.

Indeed, after the Turkish authorities complied with US demands to release Pastor Andrew Brunson following a court decision last week, the lira has been gaining ground since last Thursday, trading below the 6 range against the greenback and appreciating by 4.75% since then. For now, it appears that investors have finally decided to support the lira, although the forthcoming CBRT MPC meeting of 25 October could turn out differently than expected. Investors are expecting a 300 bps rate hike. If the central bank disappoints, the risk of an extra collapse of the Turkish lira has not disappeared.

Accordingly, it appears that the TRY trend is tending towards further strength, as the Turkish government is working with the US to investigate the case of the missing Saudi Arabian journalist Jamal Khashoggi. The upcoming visit to Turkey by US Secretary of State Mike Pompeo will confirm the easing of tension between both nations, thus giving further relief to the lira.

USD/TRY is trading along 5.79, approaching the 5.74 range.

By Vincent Mivelaz