Pound Sterling to US Dollar (GBP/USD) Exchange Rate Hits 13-Month Low on Turkish Currency Crisis

UPDATE: As the Turkish currency crisis continued to worsen over the course of Friday afternoon this kept the GBP/USD exchange rate on the back foot.

The Trump administration’s decision to double tariffs on Turkish steel escalated worries over the future of the Turkish economy, benefitting the US Dollar as a sense of risk aversion gripped investors.

GBP/USD Exchange Rate Pressured as Falling Turkish Lira Boosts Safe-Haven Demand

UPDATE: An increased sense of market risk aversion put additional pressure on the Pound Sterling to US Dollar (GBP/USD) exchange rate ahead of the weekend.

Demand for the US Dollar (USD) strengthened sharply on the back of a collapse in the value of the Turkish Lira (TRY), with markets losing faith in the outlook of the Turkish economy.

As investors piled out of risk-sensitive assets this helped to drive USD exchange rates higher across the board on Friday morning.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Fails to Benefit From UK Growth Data

The Pound Sterling to US Dollar (GBP/USD) exchange rate slipped to a fresh thirteen-month low on Friday morning, in spite of solid UK gross domestic product data.

Although the quarterly growth rate doubled from 0.2% to 0.4% in the second quarter Pound Sterling (GBP) struggled to capitalise on this improvement.

June’s monthly GDP reading was of a more disappointing nature, showing that growth eased from 0.3% to 0.1% in the final month of the second quarter.

This suggests that the UK economy is still struggling to recover its lost momentum, pointing towards a weaker start to the third quarter of 2018.

As a result, GBP exchange rates remained under pressure ahead of the weekend, even after June’s visible trade deficit narrowed further than forecast.

Solid US Inflation to Keep GBP/USD Exchange Rate Under Pressure

Further pressure may materialise for the Pound Sterling to US Dollar (GBP/USD) exchange rate this afternoon on the back of the latest US consumer price index data.

While the headline inflation rate is not forecast to see any change on the year this could still encourage the US Dollar (USD) to extend its recent gains.

As long as price pressures remain elevated this is likely to support bets that the Federal Reserve will raise interest rates at its September policy meeting.

If inflation shows signs of easing on the month, however, this could offer the GBP/USD exchange rate some breathing room in the short term.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Rally Possible on Higher UK Inflation

July’s UK inflation data could offer the Pound Sterling to US Dollar (GBP/USD) exchange rate a rallying point next week.

Forecasts point towards the headline CPI picking up from 2.4% to 2.5% on the year, indicating that inflationary pressures are still building within the domestic economy.

This may encourage a more hawkish policy outlook from the Bank of England (BoE) in the months ahead, in spite of the disappointing nature of recent growth data.

Any easing in inflation, on the other hand, would leave GBP exchange rates vulnerable to fresh downside pressure.

Lingering market worries over Brexit and the possibility of the UK leaving the EU without any agreed deal are also likely to remain a drag on Pound Sterling.

US-China Trade Tensions Forecast to Support US Dollar (USD) Exchange Rates

Any fresh escalation in trade tensions between the US and China could weigh heavily on the Pound Sterling to US Dollar (GBP/USD) exchange rate.

Market risk aversion could keep the US Dollar on a generally bullish trend, even if China and the US announce plans for further trade tariffs.

Unless investors see reason to doubt the resilience of the US economy USD exchange rates look set to remain on a stronger footing.

Signs of weakness in July’s US retail sales and industrial production data may offer the Pound Sterling to US Dollar (GBP/USD) exchange rate a boost, however.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail