Lira Shored up by Decrease in Turkish Inflation
The appeal of the Turkish Lira was improved ahead of the weekend by the news that the domestic inflation rate had fallen further than forecast. Clocking in at 8.78% rather than the 9.35% that traders had expected, inflationary pressure eased back towards the target range of the Central Bank of the Republic of Turkey (CBRT). Although this more bullish result did dent the GBP/TRY currency pair, the effect was ultimately temporary.
Risk appetite initially declined on Friday in response to the latest US Non-Farm Payrolls report as investors reacted to a stronger-than-expected headline figure. However, as wage growth remained weak the likelihood of the Federal Open Market Committee (FOMC) opting to raise interest rates again in the near future rapidly diminished. Consequently the appeal of emerging-market currencies such as the Lira saw a strong rebound.
Monday’s Turkish Treasury Cash Balance proved rather less encouraging, declining sharply from 3.30 billion to -9.66 billion Lira. With increasing concerns over Turkey’s stability amid rising political tensions and increasing pressure from the refuge crisis, this offered no encouragement to risk-sensitive traders.
Disappointing BRC Sales Weakened Pound Sterling
‘Brexit’ worries returned to plague the Pound on Tuesday, with markets reacting unfavourably to testimony from Bank of England (BoE) Governor Mark Carney on the matter. Carney acknowledged that the UK voting to leave the European Union posed a threat to economic stability, at least in the short term, although the Governor equally stated that there were also risks to remaining within the EU.
Confidence was also knocked by the February BRC Like-For-Like Sales report, which showed a more severe decline in consumer demand than forecast. Slumping from 2.6% to just 0.1% on the year, this sign of stalling retail growth prompted investors to drop the Pound in favour of many of its rivals.
Despite a dip in Turkish Retail Sales the Lira advanced once again in response to January’s Industrial Production data, as it defied expectations to post a bullish increase from 4.5% to 5.6%. In spite of increased risk aversion as a result of poor Chinese trade data, this stronger showing seemed to indicate that the health of the Turkish economy was improving somewhat.
ECB Rate Decision Triggered Volatility for Lira
As the NIESR Gross Domestic Product Estimate suggested that UK economic growth slowed further from 0.4% to 0.3% in the three months to February the GBP/TRY exchange rate trended lower on Wednesday. With ‘Brexit’ uncertainty set to drag significantly on the domestic economy in the months leading up to June’s referendum this discouraging result prompted the Pound to weaken further.
The GBP/TRY exchange rate saw greater volatility on Thursday afternoon as markets reacted to the European Central Bank’s (ECB) latest policy announcement. While the Lira was initially bolstered strongly on the back of the surprising extent of the central bank’s latest monetary loosening measures, subsequent comments from ECB President Mario Draghi prompted a sharp reversal.
Friday’s UK Visible Trade Balance could trigger a renewed downtrend for the Pound, however, as pundits anticipate that the country’s trade deficit widened further in January. Should the figure better expectations, the GBP/TRY pairing could hold onto its gains, but with Chancellor George Osborne due to present his latest budget next week any disappointing data is likely to hit Sterling heavily.