Ahead of the weekend the GBP/TRY exchange rate was on a general uptrend, in spite of the Pound softening as the result of a disappointing third quarter UK GDP on Tuesday. Economic growth in the nation weakened both on the quarter and on the year, suggesting that the Bank of England (BoE) would feel little incentive to tighten monetary policy in the near future. Although domestic housing data proved mixed and the CBI Reported Sales figure suggested that retail demand had slumped pointedly in October, Sterling nevertheless remained strong against the Lira.
However, a surge was in store for the Lira on Sunday as the results of the Turkish parliamentary elections were revealed. The Justice and Development (AKP) party of President Recep Tayyip Erdoğan unexpectedly emerged with a clear majority, gaining a much higher percentage of the vote than commentators had anticipated. In spite of the political climate remaining relatively uneasy traders were generally reassured in the immediate aftermath of this outcome, prompting the GBP/TRY exchange rate to slump sharply to 4.3515.
Monday saw a further dip for the pairing, which fell to a two-month low of 4.2783 ahead of the UK’s October Manufacturing PMI. It was not long before the Pound saw a resurgence, however, as the figure ultimately defied expectations of a slight fall to instead rise from 51.8 to 55.5. This bullish result prompted a surge in confidence, with pundits strongly encouraged by the news that the domestic manufacturing sector had shown such a wide expansion on the month. Despite cautions that this trend was not likely to extend through the remainder of the quarter, with economists remaining sceptical that this strong showing was little more than an outlier, the GBP/TRY conversion rate rallied.
The corresponding Turkish Manufacturing PMI was not so impressive. In spite of showing improvement, edging higher from 48.8 to 49.5, the sector remained in a persistent state of contraction. Tuesday’s domestic Inflation Rate was a little more positive for the Lira, as it bettered forecasts to fall back to 7.58% and thus closer to range of the Central Bank of the Republic of Turkey’s (CBRT) 5% inflation target. Nevertheless, the currency struggled to make any particular gains as sentiment towards the Pound held a decidedly bullish note.
The UK Services PMI proved better than expected, demonstrating that the domestic service sector had strengthened in October with an accelerating pace of expansion. Given that this particular sector is the single largest contributor to the national GDP this result naturally led to another rise in demand for Sterling. Pundits were especially encouraged by the proximity of Thursday’s BoE Rate Decision and meeting minutes, hoping that policymakers will strike a more hawkish tone in response to this solid domestic data. Should the minutes demonstrate a more optimistic attitude towards a nearer term interest rate rise the GBP/TRY exchange rate could continue to extend its recent gains.