USD/TRY forecast after the Fed and CBRT interest rate decisions

The USD/TRY exchange rate continued its strong rally after the latest Federal Reserve and Turkish central bank interest rate decisions. The pair was trading at 39.68 on Friday, a few points below the year-to-date high of 40.02. This price is about 12% above its lowest point in January.

Federal Reserve interest decision

The USD/TRY exchange rate rallied strongly this year as the Federal Reserve made its interest rate decision. The bank left interest rates unchanged between 4.25% and 4.50%, and expressed concerns about the economy because of Donald Trump’s tariffs. 

Officials hinted that the bank will cut interest rates two times this year and four times in the next two years. This decision was in line with expectations and was fairly hawkish. 

The decision also attracted criticism from Donald Trump, who has asked the Fed to cut interest rates. In a statement on Thursday, he blasted Jerome Powell, accusing him of costing the US hundreds of billions of dollars in interest payments. He pointed out that Europe has had 10 interest rate cuts since last year (the number is 8). 

The Fed expects that inflation will continue rising this year as companies adjust to Trump’s tariffs. Trump has added a baseline 10% tariff on all imports and more others on steel and aluminum. 

Turkish Central Bank decision

The USD/TRY exchange rate also held steady after the Central Bank of the Republic of Turkey (CBRT) delivered its interest rate decision. 

As was widely expected, the bank decided to leave interest rates unchanged at 46%, where they have been in the past few months. It also left the rates corridor between 44.5% and 49%.

The bank left room for cuts as recent data showed that consumer inflation made some modest improvements last month. The numbers revealed that the headline consumer price index (CPI) crashed to 35.4% in May, its lowest level in four years. 

The most leading indicators signal that the country’s inflation continued falling this month. At the same time, it expects the economy to continue doing relatively well this year. In a note, a Bloomberg analyst said:

“We identified a dovish tilt in the central bank’s interpretation of recent inflation and activity related data as a third and final policy outcome from the June meeting. The decision statement advised the central bank will use policy tools “effectively” — marking a change from earlier language suggesting tightening — if the inflation outlook worsens. We read this as indicating the central bank is gearing up for cuts to the policy rate starting in July.”

The main risk is that the region is facing major geopolitical challenges that may lead to higher inflation as crude oil prices surge.

USD/TRY technical analysis

The daily chart shows that the USD/TRY exchange rate has been in a strong uptrend as the Turkish lira crash continued. It has formed an ascending channel and remained above the 50-day moving average, a sign that the bullish trend will continue.

The risk, however, is that the pair has formed a bearish divergence pattern as the MACD and the Relative Strength Index (RSI) have drifted downwards.

Therefore, the pair will likely have a bearish breakdown, with the next point to watch being at 39. A move above the resistance at 40 will invalidate the bearish view.

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