Inflation in Turkey surprised slightly to the upside yesterday (2.9% MoM vs 2.5% expected). Although the year-on-year reading continues to fall further, slower disinflation may again weigh on the Central Bank of Turkey's caution in the timing of the first rate cut. Markets still expect a first cut in December but Friday's inflation report and the Governor's presentation could tell us more, ING’s FX analyst Frantisek Taborsky notes.

CEE market remains volatile

“TRY remains unchanged and the US election doesn't seem to change the set trajectory either. Market pricing of rate cuts is gradually shifting from this year to next year. Although the market reacted little to the higher inflation number, we will likely see more repricing later. Despite further upside surprises in inflation and the postponement of the first rate cut, it is clear that we are approaching a period where rate cuts will be on the table.

“Although the US election should not affect the TRY market, we believe it is safer to be in the spot market for carry collection in FX, while forwards may prove more volatile in current conditions. Elsewhere in the region today, the calendar is empty. The Central and Eastern Europe (CEE) market remains significantly volatile with yesterday's strong rally in PLN assets.”

“Although FX across the region saw buyers yesterday morning, following the EUR/USD move higher, it closed almost unchanged at the end of the day. On the other hand, rates and bonds saw some rallies, especially in the PLN market, which after last week's sell-off may seem like the cheapest option in case of a Harris victory in the US election. Thus, today should be in a similar fashion as a last chance to adjust positions before the risk event.”