Pound Sterling to Turkish Lira (GBP/TRY) Exchange Rate Surge Limited by Weak UK Manufacturing Data

Pound to Turkish Lira (GBP/TRY) Exchange Rate Jumps on Hopes for UK-EU Financial Services Deal

Investors continued to back the Pound (GBP) on Thursday in reaction to reports that the UK and EU were closing in on a deal on financial services. Despite this, poor UK manufacturing data limited the GBP/TRY potential for gains.

After opening this week at the interbank level of 7.17, GBP/TRY slumped and to a two-month-low of 6.94 on Wednesday. Since then the pair has recovered most of its weekly losses, but GBP/TRY was unable to hold Thursday’s best levels.

Most of today’s Pound movement comes as a response to news that the EU would allow access to the Eurozone for the financial services sector post-Brexit. The future of UK financial services has been among the primary concerns for markets since the referendum vote.

The Turkish Lira (TRY), on the other hand, has been weaker since Turkey’s finance minister announced some tax cuts yesterday.

The embattled currency has also been weighed by recent market aversion for emerging market currencies.

Pound (GBP) Exchange Rates Jump on Financial Services News, but Gains Limited

The biggest movement today has been caused by a report claiming that the UK and EU had agreed to a deal on how to handle financial services post-Brexit.

According to The Times newspaper, government sources said that tentative deals and plans had been reached covering broad aspects of future services partnerships.

The agreement would reportedly use the EU’s ‘equivalence’ system. It’s a system the EU typically uses for non-EU nations, provided those nations follow the same services rules as the EU does.

There is a downside to the equivalence system for the UK however, as it can allegedly be withdrawn by the EU at any time with only around a month’s notice.

For now though, investors are highly optimistic about the possibility of a financial services deal being agreed.

Sterling’s rally was sapped by a disappointing UK manufacturing PMI though. The PMI was forecast to slow to 53, but instead slumped to 51.1. This marked the lowest print in 27 months and the worst month since just after the 2016 Brexit vote.

Turkish Lira (TRY) Exchange Rates Unappealing on Turkey Tax Cut Announcements

The Pound (GBP) was able to more easily climb against the Turkish Lira (TRY) today as the Turkish currency’s strength was pressured by Turkey’s latest fiscal policy news.

On Wednesday, Turkish Finance Minister Berat Albayrak announced a fresh range of tax cuts on many goods including furniture, electronics and real estate.

It is the latest part in the government’s attempts to curb inflation and calm the movement of the Turkish Lira. In the announcement, Albayrak stated:

‘After the recent spike of the Turkish lira, we are now observing a reduction in the inflation. We will see the mitigation of inflation in October figures.’

The Turkish Lira’s appeal has been further limited this week by low market demand for emerging market currencies. Investors are currently risk-averse amid political uncertainties in the Eurozone and a strong US growth outlook.

Pound to Turkish Lira (GBP/TRY) Exchange Rate Outlook: Investors Await Turkish Inflation Data

While late-week Pound to Turkish Lira (GBP/TRY) exchange rate movement may be slightly influenced by the Bank of England’s (BoE) November policy decision and October construction PMI data, potential Brexit developments are more likely to cause bigger movements.

Investors are still anticipating any major Brexit developments. The UK government is expected to begin preparing for a possible ‘no-deal’ Brexit if a deal is not finalised by mid-November.

UK negotiators suggest that a deal could be reached by late-November, however.

If there is no perceived progress in Brexit negotiations soon, the Pound (GBP) could weaken again if fears deepen.

As for the Turkish Lira (TRY), Monday’s Turkish data may be highly influential and could cause some movement in GBP/TRY.

Monday will see the publication of Turkey’s October Consumer Price Index (CPI) inflation report.

Turkey’s monthly inflation rate is forecast to have slowed from 6.3% to 3.6%., but if inflation slows less than expected, investors may become anxious.

Typically influential UK services PMI data will be published on Monday, which may also influence movement in the Pound to Turkish Lira (GBP/TRY) exchange rate.

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Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard

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