Turkish Lira to Pound Exchange Rate Tumbles ahead of Vital TCBM Interest Rate Hike
The Turkish Lira (TRY) has been highly volatile today, having failed to shake off fears among currency traders.
The latest Lira crisis began when it was rumoured that the Turkish central bank (TCMB) might be losing some of its independence, due to ‘interference’ from President Recep Tayyip Erdogan.
Lira traders have panicked because Mr Erdogan has reportedly prevented the TCMB from raising interest rates to combat high inflation.
The TCMB is about to enter a trial by fire when policymakers decide on interest rates at noon on Thursday.
In a move that could trigger a Lira to Pound exchange rate rally, TCMB officials are predicted to hike interest rates from 17.75% up to 22%.
This sharp rise in interest rates might cause TRY/GBP exchange rate turbulence, however, as economists predict that a rate hike will have the adverse effect of slowing economic growth.
In the past, however, Erdogan has said that he was ‘the enemy of interest rates’ so it remains to be seen how the central bank will act.
High Tension among TRY Traders Enables Pound Sterling Exchange Rate Rise
Pound Sterling (GBP) has risen by 0.3% against the Turkish Lira (TRY) today, hitting an interbank exchange rate of TRY8.44.
This comes after some supportive UK data releases and before a key Turkish central bank meeting.
In the former case, today’s UK jobs market data has boosted GBP demand by revealing faster wage growth during July; the unemployment rate has also remained at a historically-low 4%.
Optimistic Outlook from EU’s Barnier Keeps GBP/TRY Exchange Rate High
In related news, the Pound Sterling to Lira exchange rate (GBP/TRY) has risen because of recent remarks from EU Chief Negotiator Michel Barnier.
Mr Barnier has boosted GBP demand by estimating that Brexit talks could be concluded by November ‘if we are realistic.’
TRY/GBP Forecast: Will TCMB Rate Hike Trigger Lira to Pound Exchange Rate Rally?
All eyes are on the aforementioned TCMB interest rate decision on Thursday as the next driver of GBP/TRY movement.
A forecast-matching rate hike could be enough to trigger a Turkish Lira rally, although even an increase to 22% might not be high enough to convince some traders to buy into TRY.
An additional risk is that TRY traders will consider Turkey’s economic problems are systemic, in which case the effect of having higher interest rates would also be curbed.
Following on from the TCMB meeting, Bank of England (BoE) policymakers will also be deciding on UK interest rates. As it stands, higher interest rates aren’t expected until 2019 at the earliest.
BoE officials could nonetheless boost the GBP/TRY exchange rate if they suggest that today’s supportive UK jobs market data could bring an interest rate hike sooner rather than later.