• USD/TRY pares the biggest daily gains in seven months amid US Dollar’s retreat.
• Fed officials failed to reverse CBRT-led rally despite defending restrictive monetary policy.
• China improves sentiment, allows US Dollar bulls to take a breather ahead of top-tier employment, inflation clues.
• Q2 Turkish GDP, US NFP and Core PCE Price Index eyed for clear directions.

USD/TRY sticks to mild losses as it retreats to 26.50 heading into Monday’s European session. In doing so, the Turkish Lira (TRY) pair failed to extend the previous day’s rebound from the lowest level in two months amid a broad US Dollar pullback. However, the cautious mood ahead of this week’s top-tier Turkish and US data prods the pair sellers of late.

Mixed concerns about the Federal Reserve’s (Fed) capacity to push back the policy pivot, amid recently unimpressive data, weighs on the US Dollar as the Fed officials highlighted the data dependency during last week’s Jackson Hole speeches. Also likely to weigh on the Greenback, as well as the USD/TRY pair, is the slightly positive sentiment and aftershocks of the Central Bank of the Republic of Türkiye (CBRT) rate hike.

That said, Fed Chair Jerome Powell gained major attention as he reiterated his defense of “higher for longer” rates while stating that the policy is restrictive but the Fed can’t be certain what neutral rate level is. The policymaker also added that there is substantial further ground to cover to get back to price stability while also stating that the economic uncertainty calls for agile monetary policy-making.

On the other hand, the CBRT surprised global markets by lifting the benchmark rates to 25%, versus 20% expected and 17.5% previous readings, to tame the inflation woes that recently gained momentum after wildfires wrecked an international trade route around Turkiye.

Amid these plays, S&P 500 Futures defend the previous day’s rebound from a one-week low to around 4,420, up 0.10% intraday, whereas the US 10-year Treasury bond yields grind near 4.23% after snapping the four-week uptrend by posting minor weekly losses as it retreated from the highest level since 2007. That said, the US Dollar Index (DXY) eased from the highest level since June 01 to around 104.05.

Looking ahead, Turkish growth numbers for the second quarter (Q2) of 2023 will join the Federal Reserve’s (Fed) favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for July, and the monthly employment data, to direct USD/TRY moves.

Technical analysis

Unless witnessing a clear upside break of the five-week-old previous support line, now resistance around 27.10 by the press time, the USD/TRY bears remain hopeful. That said, the pair sellers, however, may remain cautious beyond 25.65 horizontal support.