Latest on foreign exchange: Volatility in the Turkish Lira continues

Global markets are awaiting the US CPI data, which will be released today at 15:30 Turkish time. Consumer prices in the US are expected to rise slightly by 0.1 percent in May compared to the previous month, while core consumer prices are projected to rise by 0.3 percent.

Hours after the US CPI data, the US Federal Reserve's two-day monetary policy meeting will conclude. While it is considered almost certain that the Fed will keep its policy rate unchanged today, the focus will be on whether its projections for this year still include three interest rate cuts.

According to the CME FedWatch Tool, markets are pricing in a 56 percent probability of the Fed cutting interest rates in September. The probability of a rate cut in September was priced at 77.8 percent just one week ago.

There is no data to follow on the domestic agenda today.

The Treasury conducted re-issuances of four-year TLREF-indexed bonds and four-year fixed-coupon bonds yesterday. With yesterday's auctions, the Treasury borrowed approximately 190 billion TL.

Stating that it will support the Central Bank of the Republic of Turkey (TCMB) in withdrawing liquidity from the market if necessary, the Treasury increased its borrowing forecast for this month by 37 billion TL to 254 billion TL and also raised its July forecast by 19 billion TL.

The Treasury will complete its monthly program tomorrow with two direct sales of gold-denominated instruments.

TL IS VOLATILE AFTER A LONG PERIOD OF SIDEWAYS MOVEMENT

The Turkish Lira had completed the months of April and May with almost no change against the dollar. As of last week, however, the Lira fluctuated first due to election results in emerging market countries and then due to US employment data on Friday.

The Lira experienced its first depreciation and foreign position closing in more than two months since the local elections twice last week.

Volatility, albeit within a narrow band, continued yesterday around political developments. Emerging market assets lost value early this week due to political uncertainty created by the European Parliament elections and the elections in Mexico.

As of 08:51 this morning, the midpoint of quotes for the dollar/TL was at the 32.35 level. Despite the volatility in the Lira, the losses were not permanent. The Euro/TL is trading in the 34.80 band.

Traders stated that the Lira has only recently begun to reflect capital inflows and outflows of emerging market currencies in a similar way, and that this is a healthy movement.

The sideways movement seen in the dollar/TL due to the TCMB's net foreign exchange purchases and the relatively high yield of the Lira have continued to keep the Lira's appeal high for both foreign and domestic investors.

According to bankers' calculations, the TCMB's net reserves excluding swaps rose to 6 billion dollars last week. Net reserves excluding swaps had turned positive for the first time in four years in the week of May 31, at 1.5 billion dollars. While bankers calculated the change in the week ending June 7 as a 4.5 billion dollar increase, the total increase in the last 10 weeks following the local elections was approximately 72 billion dollars.

According to bankers' calculations, the TCMB's net international reserves rose by approximately 2 billion dollars last week to 47.5 billion dollars. Total reserves were calculated to have increased by 2.5 billion dollars to 146 billion dollars.

The TCMB also reduced the obligation ratios for the sale of export proceeds and foreign exchange-earning service revenues to the TCMB from 40 percent to 30 percent, with an implementation that began on Monday.