The Pound to Turkish Lira exchange rate had recovered halfway to last week’s highs on Tuesday’s session after a sudden and surprising conclusion to Britain’s Conservative leadership contest led to the UK’s new Prime Minister being Theresa May. GBP/TRY was trending above the key level of 3.80 at the time of writing.
Prime Minister May to be in Office by Wednesday
The Pound surged on Monday evening and throughout Tuesday on the news that Britain’s next Prime Minister had been decided well ahead of schedule.
Previously expected to run until the 9
th
of September, the Conservative leadership contest ended abruptly on Monday afternoon. One of the top two runners, Andrea Leadsom, suddenly pulled out and pledged support to the final remaining nominee, Theresa May.
This made May the de-facto winner. Following confirmation from Chairman of 1922 Committee Graham Brady that the contest would not be re-opened for more runners, outgoing Prime Minister David Cameron announced that May would be in office by Wednesday evening.
Amid Britain’s recent political uncertainty and chaos, news that the new PM would take office sooner than expected improved market sentiment towards Britain and the Pound.
BoE Governor Carney Hints at Easing Plan
Sterling remained strong on Tuesday despite news that Bank of England (BoE) Governor Mark Carney had hinted towards the central bank introducing a series of easing measures in the near future.
Carney reconfirmed that the central bank had tools to work towards stability following the destabilising Brexit vote in June.
He also hinted that there was more to this plan than simply cutting the key interest rate, and called such a move just one part of a series of measures.
Turkish Lira (TRY) Strengthens as Markets Seek out Risk
While the Pound pushed the Turkish Lira back, sentiment for the Lira was actually relatively sturdy on Tuesday due to an increase in risk sentiment across the board.
As investors rallied around the Pound and flooded away from the ‘safe-haven’ Japanese Yen (due to the prospect of further BoJ easing in the near future), the market adopted a risk-on attitude.
This left the Lira, a risky emerging market currency, stronger against many opponents. Instability within Turkey has caused the currency to struggle recently, but the GBP/TRY exchange rate has remained very low since June.
GBP/TRY Forecast: Bank of England (BoE) Decision Nears
While the Pound surged on Monday and Tuesday, this rally is likely to be temporary and could easily reverse ahead of the Bank of England’s (BoE) Thursday meeting.
BoE Governor Carney’s Tuesday comments are likely to weigh the Pound down even further as the meeting approaches. Analysts are expecting that the BoE will not just be cutting the key rate but also introducing multiple other easing measures.
However, if the bank leaves rates frozen until August, this would likely leave the Pound extending its rally this week, which could even see it reversing last week’s losses.
The Lira could remain sturdy for the duration of the current risk rally, but markets could quickly switch to a risk-off attitude on Thursday if the BoE introduces a surprising stimulus package.
In any case, GBP/TRY is unlikely to gain in the long term as a rate cut would cause Sterling to plummet.