Pound Sterling Turkish Lira (GBP/TRY) Exchange Rate Dented by Sharp CBRT Rate Hike
Mounting international trade tensions have offered some support to the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate in recent days, with the US continuing to pursue more protectionist policies.
This weighed heavily on demand for the risk-sensitive Turkish Lira (TRY), especially as the odds of an imminent Federal Reserve interest rate hike picked up further.
However, TRY exchange rates found a rallying point on Thursday after the Central Bank of the Republic of Turkey (CBRT) opted to raise interest rates.
As policymakers opted to hike rates by an unexpectedly sharp 125 basis points, taking the headline lending rate to 17.75%, this encouraged the Lira to push higher across the board.
Rising Global Tensions Leave GBP/TRY Exchange Rate on Weaker Footing
An unimpressive raft of UK economic data was not enough to prevent the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate strengthening at the start of the week.
With market risk appetite limited by the increasingly strained relationship between the US and its allies the appeal of the Lira diminished.
Although the first quarter Turkish gross domestic product reading bettered forecast this was not enough to reassure investors, who remain jittery in the face of global market tensions.
As a result, the negative impact of disappointing UK trade and production figures was largely limited on Monday, in spite of the discouraging implications for the economy.
GBP/TRY Exchange Rate Vulnerable Ahead of UK Inflation Data
Further gains could be in store for the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate this week if UK wage and inflation data impresses.
Any fresh uptick in domestic price pressures would give Pound Sterling (GBP) a fresh rallying point, increasing the incentive for the Bank of England (BoE) to raise interest rates in August.
As long as wage growth continues to outpace inflation this should offer reassurance to BoE policymakers, to the benefit of GBP exchange rates.
However, if inflation eases further in May the mood towards the Pound could turn sour.
Given signs that the UK economy is struggling to rebound in the second quarter GBP exchange rates look vulnerable to any downside surprises from this week’s data.
Risk Aversion Forecast to Benefit Pound Sterling Turkish Lira (GBP/TRY) Exchange Rate
Political concerns are likely to remain a major driving force for the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate, meanwhile.
Concerns remain over the likelihood of Turkish President Recep Tayyip Erdogan taking a more active role in monetary policy over the coming months.
If Erdogan assumes further power over the decisions of the CBRT this could leave TRY exchange rates in a sharp slump.
Any further deterioration in the global trade picture may also prompt the Lira to trend lower against its rivals, especially if the Fed raises interest rates on Wednesday as expected.
All in all, the downside potential of the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate looks a limited at this juncture.