The Turkish Lira (TRY) exchange rate softened against the Pound Sterling (GBP) and other major peers on Wednesday as it came under pressure from political uncertainty generated by polls showing that the ruling AK Party will lose its majority and be forced to form a coalition after elections due to be held on June 7.
So far this year, the Turkish Lira has weakened 11% against the US Dollar (USD) and fallen sharply against the Pound, to become one of the world’s worst performing emerging market currencies. The currency has softened further over the past week as a string of polls has suggested that the dominance of President Erdogan’s AK Party is wavering.
A survey by Turkish pollster Andy-AR showed that the AK Party is likely to win support of 41.9%, the main opposition, the Republicans Peoples Party was on 25.8% and the pro-Kurdish HDP at 10.7%. Any number above 10% is above the threshold of support required to win seats in the Turkish parliament. Other polls, however, have created uncertainty. Another poll, created by Konsensus, showed that the AK Party will achieve a majority and win 43.9% of the vote.
‘Turkish markets are recently performing slightly weaker than emerging market peers, as recent polls increased the odds of a coalition government. However, a small decline in HDP votes, below the 10% national threshold would mark a continuation of one-party government, without the power to change the constitution, which will likely spur a positive short-term market reaction,’ said a market strategist.
With support for AK not strong enough for it to easily achieve constitutional changes, President Erdogan will be unable to make his desired changes. His aim is to grant himself more executive powers, a move that would likely make observers nervous.
The Turkish economy has weakened dramatically over the past few years as growth stalls, debt spirals and unemployment remains at stubbornly high levels.
Economists are hoping that if the AK Party receives a bloody nose in the election then the party will finally take action to try to stimulate and reform the economy. If the AKP does lose some popularity, that could force it to focus more on economic management and reform. Very few reforms have been introduced in the last couple of years and Turkey is lagging other emerging-market counterparts.
The Pound Sterling to Turkish Lira exchange rate was trading in the region of 4.0654.