Over the past seven days the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate was trending within the range of 4.3334 to 4.4295.
Despite the fact that Turkey’s current account had been reduced dramatically in response to low crude prices at the tail-end of last year, with the country being one of the world’s foremost oil importers, the Lira continues the trend seen in the fourth-quarter of 2015, declining versus most of its peers. The depreciation can be attributed to speculation of weak economic growth as a result of high inflation and geopolitical uncertainty. The frayed relationship with Russia is having a particularly detrimental impact on demand for Turkey’s currency. Lira weakness was compounded on Monday after current account data revealed much of last year’s recovery was lost as the immigration crisis and the threat of terrorism saw debt mount.
The Pound has also struggled over the past seven days in response to mounting uncertainty regarding the forthcoming EU referendum. In addition: soft wage growth, low inflation and plummeting stock values have weighed heavily on demand for the British Pound. Of particular disappointment this week was domestic data which revealed that both manufacturing and industrial production remains weak, compounding speculation that miserable fourth-quarter growth will continue into the first-quarter of 2016.
On Thursday the Lira extended losses versus the Pound as Russia took over Israel as the biggest single threat to Turkey. The dramatic drop in oil prices, which has seen black-gold hovering around the $30 mark, has had minimal impact on demand for the Lira, especially with emerging markets struggling against turmoil in China and trader risk-aversion strategies. Adding to headwinds was a deadly car bomb attack on police headquarters near Diyarbakir. Five civilians including an infant were among the dead. Officials have blamed the attack on Kurdistan Worker’s Party (PKK) militants.
Meanwhile, the Pound avoided depreciation against a number of its most traded peers despite the Bank of England (BoE) opting to keep monetary policy unchanged. Sterling found support because many analysts were expecting all nine policymakers to vote against raising rates despite increased external risk factors and slowing domestic growth outlook. Ian McCafferty, known as the most hawkish Monetary Policy Committee (MPC) member, held firm in his view that the cash rate should be hiked immediately.
Looking ahead, there is the potential for GBP/TRY volatility tomorrow (Friday) in response to Turkish Unemployment data for October. The significantly high unemployment rate of 10.3% is predicted to rise to 10.4%. Should this be the case the Lira is likely to extend losses versus its currency peers. British Construction Output data is also likely to provoke changes for the GBP/TRY conversion rate given that weak sectoral growth has had a detrimental impact on demand for Sterling.
Looking further ahead, Tuesday’s British inflation data will be of particular importance. Weak consumer prices has been one of the major stumbling blocks preventing the BoE from raising rates, so any improvement will likely be met with a marked Sterling appreciation. On the same day, Turkey’s central bank interest rate decision is due with economists expecting the policy committee to hold rates at 7.5%.
The Pound Sterling to Turkish Lira (GBP/TRY) exchange rate was trending within the range of 4.3472 to 4.3880 during Thursday’s European session.