Pound to Turkish Lira Exchange Rate Gains Boosted by Turkish Economic Uncertainties
Despite some disappointing UK ecostats on Tuesday, the Pound to Turkish Lira (GBP/TRY) exchange rate remained near its best levels in over a year this morning due to broad concerns about Turkey’s economic outlook and Brexit process optimism.
After significant gains from the interbank level of 5.27 to 5.46 throughout last week, GBP/TRY continued to advance on Monday. The GBP/TRY interbank level touched a high of 5.56, its best level on record, before slipping slightly from its highs on Tuesday.
The Pound’s appeal was boosted by developments in the ongoing Brexit process, but concerns about Turkey’s economic outlook made it difficult for the Lira (TRY) to hold against Pound (GBP) gains.
Earlier in the month, credit rating agency Moody’s downgraded Turkey’s rating from Ba1 to Ba2; two levels below investment-grade.
Moody’s noted that Turkey’s numerous deficits and debts, as well as a loss of institutional strength, as being among the reasons for the latest downgrade. It further warned that the risks of external shock were high.
Pound (GBP) Exchange Rate Strength Limited by Slowing UK Inflation
The Pound to Turkish Lira (GBP/TRY) exchange rate may have held its record highs better if not for the publication of some disappointing UK inflation stats on Tuesday.
Britain’s February Consumer Price Index (CPI) results fell short of expectations in all major prints on Tuesday, dampening market hopes that the Bank of England (BoE) would take a more hawkish tone on UK monetary policy in the coming months.
Month-on-month inflation was forecast to jump from -0.5% to 0.5% but only reached 0.4%. The yearly figure fell from 3% to 2.7% rather than the forecast 2.8%. Even the yearly core inflation figure slipped further than expected, from 2.7% to 2.4%.
However, Sterling’s losses were limited. Some analysts still forecast that the recent progress in Brexit negotiations and the possibility of stronger UK wage growth would be enough to pressure the BoE into tightening UK monetary policy as soon as May.
Mixed Data Limits Turkish Lira (TRY) Exchange Rate Support
Turkish data published so far this week has been relatively influential, but amid the broad market concerns about the country’s economic outlook the news has done little to influence Turkish Lira movement.
Monday’s January retail sales stats slipped to 1.2% month-on-month but rose to 10.7% year-on-year.
The previous figures were revised higher, with the month-on-month stat rising from 0.8% to 2.6% and the yearly result being revised from 5.4% to 8.9%.
Tuesday saw the publication of Turkey’s March consumer confidence survey, which slipped to 71.3. The previous figure was revised slightly lower too, from 72.3 to 72.25.
Pound to Turkish Lira (GBP/TRY) Forecast: Bank of England (BoE) Outlook in Focus
While some notable ecostats will be published in the coming sessions, Pound to Turkish Lira (GBP/TRY) exchange rate investors are more likely to wait until the Bank of England (BoE) has made its March policy decision before making any major moves.
The BoE is not expected to make any changes to monetary policy during its decision meeting on Thursday, but clearer hints that it is preparing to hike UK interest rates in May would leave the Pound outlook higher.
As a UK-EU transition period has been largely agreed, hawkish investors are hoping that the bank will be optimistic enough about Britain’s economic outlook to quicken the pace of UK interest rate hikes, despite slowing UK inflation.
It may also be easier for GBP/TRY to advance amid a lack of market appetite for the Turkish Lira. However, if Turkish business confidence and capacity utilisation stats on Thursday impress investors this could boost Lia support slightly.
Upcoming UK data includes jobs market and wage stats on Wednesday, followed by retail sales data on Thursday.