This week has seen the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate climb from a low of 4.3867 to a high of 4.5550.
The biggest boost to the Pound’s performance against peers like the Lira came yesterday, with the announcement of the UK annual CPI rate for July but the Pound’s uptrend was initiated on Saturday when Bank of England (BoE) Monetary Policy Committee (MPC) member Kristin Forbes commented on UK interest rates. She stated that ‘maintaining interest rates at the current low levels during an expansion risks creating distortions. Therefore, interest rates will need to be increased well before inflation hits our 2% target.’ This statement was followed by the more explicit warning that ‘Waiting too long would risk undermining the recovery – especially if interest rates then need to be increased faster than the gradual path which we expect’. In short, the article tied an increase in the UK inflation rate to a higher possibility of a UK interest rate hike in the near future.
On Monday, the Pound started its climb against the Lira shortly after the European trading session opened and steadily gained against the currency over the course of the day. The Pound experienced an understandable lull yesterday morning before the UK CPI figure was announced but after it was released Sterling skyrocketed across the board, gaining against all of its rivals, including the Lira. The Pound rose by as much as 2% against the Lira, seeing an exchange rate of 4.5550.
The Lira has had a decidedly worse week than the Pound so far; the Turkish currency began the week with a brief spike against the Pound after the UK’s monthly Rightmove House Price figure for August saw a -0.8% decline, but a still high Turkish Unemployment Rate for May of 9.3% soon saw the Lira fall back against the Pound.
Tuesday has seen the worst performance for the Lira so far this week, as the decision by the Central Bank of the Republic of Turkey (TCMB) to freeze the interest rate at 7.5% was a reflection of the current domestic political turmoil and social upheaval. The nation is still without an elected prime minister, having remained in a hung-parliament state since the beginning of June when general elections failed to give any one party a majority. Coalition talks have repeatedly broken down between all of the major parties, so another general election is widely considered to be the only available option to break the deadlock. The Lira fell to a ten-year low against the US Dollar yesterday, a stark sign of how unstable the emerging currency has become.
For the rest of this week, Pound Sterling/Turkish Lira (GBP/TRY) exchange rate movement may occur as a result of the US CPI figures, the UK Retail Sales data for July, the US Manufacturing PMI for August and the Turkish Consumer Confidence score for August. The US CPI results have been forecast to increase, which could devalue the Lira significantly given the impact of Fed rate hike bets on emerging-market currencies. The UK Retail Sales results have had similarly optimistic predictions, the US Manufacturing PMI is due for no change on an already positive score and the Turkish Consumer Confidence figure is forecast for a slight drop.