Despite diplomatic uncertainties and underwhelming data from Turkey this week, the Pound to Turkish Lira exchange rate fell back towards the week’s opening levels of 4.53 on Wednesday due to concerns about the UK economic outlook.
Pound (GBP) Drops from Highs on Slowing Wage Growth
The Pound has seen wide fluctuations this week as the UK government heads ever closer to activating Article 50 and finally beginning the formal Brexit process.
Mixed UK ecostats, hopes for a more hawkish Bank of England (BoE) and the imminence of the Brexit start date have left investors deep in uncertainty.
Sterling briefly jumped on Wednesday morning as investors reacted to forecasts from The Times that the Bank of England (BoE) may be pressured into hiking UK interest rates soon. Sterling also rose as investors closed GBP short positions.
Wednesday also saw the publication of Britain’s employment data for the three months through January. However, while the UK unemployment rate improved to 4.7% (its lowest level since 1975) the day’s wage growth data was disappointing.
Average earnings came in at 2.2% including bonus and 2.3% excluding. The prints were expected to come in at 2.4% and 2.5% respectively so the worse-than-expected results caused the Pound to fall back towards the week’s opening levels.
Turkish Lira (TRY) Jittery on Political Tensions and Disappointing Employment Data
The Turkish Lira has also been notably volatile this week, as political tensions once again flared up due to a row between the Turkish government and The Netherlands’ government.
The latest row emerged over the weekend, as Turkey’s foreign minister, Mevlut Cavusoglu, was blocked from entering The Netherlands. This led to protests as well as insults towards The Netherlands from Turkish President Recep Tayyip Erdogan.
This has been the latest political controversy to weaken the Lira in recent months.
Wednesday’s Turkish unemployment rate from December 2016 also disappointed traders, worsening from 12.1% to 12.7% - Turkey’s worst unemployment rate since the aftermath of the global recession.
GBP/TRY Forecast: Central Bank News in Focus
Some Pound investors have been getting their hopes up this week that the Bank of England (BoE) could finally begin to take a more hawkish tone towards UK monetary policy due to the decent economic performance of Britain in recent months.
If the BoE does indeed indicate in its Thursday meeting that it could edge away from ultra-loose monetary policy in the foreseeable future, the Pound could surge easily against the jittery Turkish Lira.
However, some analysts remain concerned about how slowing UK wage growth and rising UK consumer prices will squeeze household spending and potentially cause significant slows in Britain’s vital retail and services sectors.
Analysts generally expect the BoE will continue its recent tone of stating that high Brexit uncertainty makes further monetary easing just as likely as monetary tightening.
Thursday will also see the Central Bank of the Republic of Turkey (TCMB) holding its March policy decision.
The Turkish interest rate is predicted to remain at 8%, but many analysts speculate that the TCMB overnight lending rate could be hiked from 9.25% to 9.75%.