Although the Pound Sterling to Turkish Lira exchange rate was bolstered to a monthly high of 4.4263 on the back of weaker-than-expected Turkish Current Account data, the pairing has since weakened substantially. Turkey’s deficit widened from -0.13 to -2.10 billion US Dollars in November, demonstrating the significant impact that negative geopolitical headwinds and the ongoing refugee crisis are having on the country. Continuing stock market volatility also weighed on the Lira, as global slowdown concerns and plunging oil prices led to a reduction in demand for higher-risk emerging-market currencies.
However, the Pound saw a sharp decline in value on Tuesday in response to a discouraging raft of UK Industrial Production data. Manufacturing in particular showed a marked contraction as weaker international demand dragged on British manufacturers. This poorer showing did not appear to bode well for the strength of the domestic economy or the odds of the Bank of England (BoE) opting to raise interest rates in the near future. While the National Institute of Economic and Social Research (NIESR) maintained a more optimistic outlook with a Gross Domestic Product Estimate of 0.6% for December, this was not enough to particularly restore investors’ faith in the Pound.
Friday’s Turkish Unemployment Rate proved disappointing, climbing from 10.3% to 10.5% in October. Rising unemployment suggests that the health of the domestic economy remains less than optimal and is likely to have a negative impact on productivity and growth, a worrying signal as external pressures equally continue to mount. Nevertheless, as members of the Federal Open Market Committee (FOMC) suggested that the Fed would be unlikely to meet its target of four interest rate hikes in 2016, a surge in risk appetite helped to push the Lira back onto an uptrend.
While the Chinese economy was revealed to have slowed to its lowest level of growth in twenty-five years at the end of 2015, stock markets remained calmer today as pundits bet on the possibility of fresh economic stimulus coming from the People’s Bank of China (PBoC). Although emerging-market currencies were widely strengthened by this confidence, the Lira was ultimately dented by the Central Bank of the Republic of Turkey’s (CBRT) decision to leave interest rates on hold at 7.5%. With domestic inflation high investors remain expectant that the central bank will opt to tighten monetary policy further in the near-future, diminishing the appeal of the Lira.
Nevertheless, the GBP/TRY exchange rate has remained on a downtrend after BoE Governor Mark Carney proved particularly dovish in a speech at the University of London. Carney suggested that interest rates were unlikely to rise for some months to come, although the policymaker refused to set a particular timeline on the BoE’s move towards monetary tightening. Consequently, the Pound has slumped markedly across the board, benefiting the softer Lira.