Demand for the Turkish Lira strengthened ahead of the weekend thanks to an increase in market risk appetite. Although the recent recovery in the price of Brent crude had weighed heavily on the appeal of the emerging-market currency, some of this decline was reversed ahead of the latest bi-annual OPEC meeting. As the cartel of oil producers failed to agree any coordinated action to cap production the value of crude slumped back below the $50 per barrel mark, benefitting the Lira thanks to Turkey’s high level of oil imports.
However, the GBP/TRY exchange rate soon returned to an uptrend in spite of this latest disappointment. Concerns over the hawkishness of members of the Federal Open Market Committee (FOMC) hampered the strength of the Lira, particularly as US data remained generally supportive of a summer interest rate hike. With oil prices also recovering from the, admittedly limited, shock of OPEC’s failure to freeze production there was little reason for investors to favour the higher-risk currency.
Weak US Payrolls Booster Lira on Reduced Odds of Fed Hike
The appeal of the Pound improved, meanwhile, in response to the latest UK Services PMI, which bettered expectations to strengthen from 52.3 to 53.5. Given that the service industry accounts for the majority of the UK’s economic activity this stronger showing prompted the GBP/TRY currency pair to trend higher, with confidence in the domestic economy shored up. This improvement eased concerns that there could be a greater underlying weakness in the UK economy, suggesting that recent data has been primarily hampered by referendum uncertainty.
It was not long before the Lira began to rally once again, however, with investors encouraged by the relative lack of change in annual inflation in May. Stable levels of domestic inflationary pressure would suggest that the Central Bank of the Republic of Turkey (CBRT) is less likely to alter monetary policy in the near future.
Risk appetite saw a sharp increase later on Friday thanks to a surprisingly weak US Non-Farm Payrolls report. Only 38,000 new jobs were added to the US economy in May, as opposed to the 160,000 that had been forecast, promptly derailing the chances of the Fed opting to raise interest rates imminently. As a result the appeal of higher-risk currencies such as the Lira strengthened markedly, putting renewed pressure on the GBP/TRY exchange rate.
Lira Forecast to Trend Higher on Strong First Quarter GDP
Strength continued to leave the Pound throughout Monday’s European session, with markets spooked by the latest raft of EU referendum opinion polls. Support for the ‘Leave’ campaign was shown to have increased in the last week, seeming to indicate that the odds of a ‘Brexit’ could be higher than markets have currently priced in. As a result, with little in the way of domestic data to offer encouragement, the GBP/TRY exchange rate dropped to a monthly low of 4.1785.
Political concerns could return to weigh on the Lira in coming days, as investors remain jittery over potential developments surrounding President Recep Tayyip Erdogan. However, the latest Turkish data is expected to prove bullish, with strong results forecast for April’s Industrial Production and first quarter GDP. Should the economy demonstrate fresh signs of robustness, the Lira could maintain its stronger footing against rivals, especially if the appeal of the US Dollar remains muted.
The GBP/TRY exchange rate is likely to struggle to recover its earlier bullish form, meanwhile, with signs from the UK economy expected to offer limited support to the Pound. Industrial and Manufacturing Production are anticipated to have weakened on the year in April, while the NIESR GDP estimate for May is unlikely to point towards greater domestic growth. As ‘Brexit’ concerns could also continue to weigh on Pound Sterling as the referendum draws nearer, the Lira could continue to make gains.