USD/TRY advances to near 38.00 as political unrest erupts in Turkey

• USD/TRY appreciates as the US Dollar appreciates ahead of the weekly Initial Jobless Claims.
• US yields depreciated after the Federal Reserve reaffirmed its outlook for two rate cuts later this year.
• The Turkish Lira faces headwinds as political unrest erupts following the arrest of Istanbul Mayor Ekrem Imamoglu.

USD/TRY continues to gain ground as the US Dollar (USD) extends its gains, trading around 38.00 during the early European hours on Thursday. On Wednesday, the Federal Reserve held the federal funds rate steady at 4.25%-4.5% during its March meeting. Fed Chair Jerome Powell noted, "Labor market conditions are solid, and inflation has moved closer to our 2% longer-run goal, though it remains somewhat elevated." Traders will likely observe the weekly Initial Jobless Claims, seconded by the Philly Fed Manufacturing Index and Existing Home Sales due on Thursday.

However, the Greenback might have received downward pressure from declining yields after the Federal Reserve (Fed) reaffirmed its outlook for two rate cuts later this year. However, uncertainty surrounding US President Donald Trump's tariff policies adds a layer of caution.

The 2-year yield stands at 3.97%, and the 10-year yield at 4.24% at the time of writing. Meanwhile, US Treasury bonds gained traction following the Fed's decision to slow the pace of quantitative tightening, citing concerns over reduced liquidity and potential risks tied to government debt limits.

Additionally, the Turkish Lira faces headwinds as political unrest erupts following the arrest of Istanbul Mayor Ekrem Imamoglu. His detention on Tuesday has sparked widespread protests, the largest seen in years. Many political analysts view Imamoglu as President Recep Tayyip Erdogan's strongest rival and the most likely opposition candidate for the 2028 presidential election.

Earlier this month, the Central Bank of the Republic of Türkiye (CBRT) cut its benchmark one-week repo auction rate by 250 basis points to 42.5%--its lowest level since December 2023. The Monetary Policy Committee (MPC) justified the move by citing a decline in the core inflation trend in February, following January's increase (39.05% vs. 42.12%).

Despite supportive domestic demand for disinflation and improving inflation expectations, risks remain in Türkiye. The central bank has reaffirmed its commitment to maintaining a tight monetary policy stance until inflation and price stability are achieved.