Pound to Turkish Lira Exchange Rate Jumps on UK Services Sector Growth

The Pound has fluctuated wildly against the Turkish Lira recently, but managed to rise by 0.9% after surprising growth in the UK services sector.

Pound Advances as Three UK PMIs Beat Forecasts

Sterling has been alternately boosted by domestic data but weakened by political developments since May 1
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On the positive side, UK manufacturing, construction and services PMIs have all risen in April, instead of falling as forecast.

This shows increased activity, which is especially important for the services sector – the largest contributor to UK economic growth.

Less supportively, Theresa May has gone on the offensive against the EU and accused it of interfering in the UK general election. This has heightened fears of the government being offered bad Brexit deal and applied pressure to Pound exchange rates.

Lira Rises as Russia Eases Sanctions on Turkey

The Lira, meanwhile, has been able to firm slightly despite the Pound’s PMI related gains and the situation in Turkey remaining highly unstable.

A TRY boost came in the form of the lifting of Russian sanctions on Turkey, which were put in place in 2015. Relations between the two countries hit a low point when Turkish forces shot down a Russian warplane, but ties have since been mended.

This lifting of sanctions is expected to bring increased trade between Turkey and Russia and more tourism, though Turkey remains at risk of sporadic terror attacks and is still coping with the refugee crisis.

GBP/TRY Forecast

Next week, Pound/Lira exchange rate movement may occur as a result of the Bank of England (BoE) interest rate decision and UK trade balance data – both on Thursday.

Given the current economic uncertainty amid Brexit negotiations and the general election campaign, the BoE is unlikely to make any dramatic policy changes.

Policymakers could still improve the Pound to Lira exchange rate, however, if they issue optimistic statements about the UK economy’s economic prospects.

The trade balance figure for March previously showed a deficit of -3.66bn. If this expands considerably, the Pound may slide against the Lira.

Less impactful UK news on Thursday will be March’s industrial and manufacturing production measures, along with a record of construction activity. If the construction figure drops, it could imply less homes are being built. This would raise house prices, pressurise high-debt households and could devalue the Pound.

Turkish data to look out for next week includes retail sales, industrial production and the national current account.

Retail sales stats for March are out on Tuesday; the year-on-year result previously fell by -4.4%, so the Lira could decline if this doesn’t return to a positive range.

Thursday’s main release will be the current account figure for March. This previously showed a deficit of -2.527bn, so a deficit expansion is also likely to devalue the Lira.

Oliver Meredew

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