USD/TRY advances to multi-week highs above 5.8500 on escalating geopolitical tensions

• Worries over heightened US-Turkey diplomatic tensions weigh on TRY.
• CRBT cut its policy rate by 200 basis points last week.
• Quarterly Jobless Average eased to 13.8% from 14% in Turkey.

The USD/TRY advanced to its highest level since October 22 at 5.8537 on Monday with the TRY struggling to find demand amid escalating US-Turkey diplomatic tensions. As of writing, the pair was trading at 5.8490, adding 0.7% on a daily basis.

CBRT and politics hurt TRY

After the US Senate committee backed legislation that opens the door for additional sanctions on Turkey over its purchase of Russian S-400 missile system last week, Turkish President Erdoğan said that Turkey could shut down the İncirlik airbase if the US were to impose sanctions. 

In the meantime, the Central Bank of the Republic of Turkey (CBRT) on Thursday announced 200 basis points, above consensus, cut to its one-week repo auction rate. Commenting on the CBRT's policy move, "we flag that the CBRT may face a delicate balancing act in 2020: as the current account turns into a deficit and domestic demand recovers, potential external shocks are likely to have a more material impact than in 2019," said Standard Chartered analysts. 

On the other hand, the data from Turkey on Monday revealed that the Quarterly Jobless Average fell to 13.8% in three months to September from 14% but failed to help the TRY stay resilient against the USD.

In the second half of the day, the IHS Markit's Manufacturing and Services PMI data from the US will be looked upon for fresh catalysts. The US Dollar Index, which posted losses for the second straight week on Friday, was last down 0.2% on the day at 97, limiting the pair's gains for the time being.