Pound Sterling to Turkish Lira (GBP/TRY) Exchange Rate Surges as Global Trade Tensions Mount

US-China Trade Tensions Drive Pound Sterling Turkish Lira (GBP/TRY) Exchange Rate Higher

As trade tensions between the US and China appeared to pick back up, the mood towards the Turkish Lira (TRY) soured significantly, driven down by a collapse in market risk appetite.

While the Lira had benefitted from hopes of a stabilisation in US-China relations at the G20 summit over the weekend these gains were quickly reversed this morning, with GBP/TRY trading down around 0.8% at 6.84.

The arrest of prominent Chinese businesswoman Meng Wanzhou in Canada and reports of a possible extradition to the US spooked markets, with the arrest potentially derailing all recent progress on trade.

With confidence in the underlying health of the Turkish economy still limited this latest sign of souring global relations left investors with little reason to support the Lira.

Pound Sterling (GBP) Benefits from Lower Odds of No-Deal Brexit

The Pound Sterling to Turkish Lira (GBP/TRY) exchange rate also benefitted from growing market hopes that the UK will avoid leaving the EU without any deal in place.

Even though Theresa May’s Brexit plan looks increasingly likely to suffer rejection in next week’s vote this has failed to particularly weigh on the minds of investors.

With MPs now better able to intervene and avoid a no-deal Brexit, thanks to an earlier amendment, the downside potential of Pound Sterling (GBP) has proved limited.

Although the UK economy looks set to see weaker growth in the fourth quarter, in the wake of November’s disappointing services PMI, the mood towards the Pound has refused to dampen.

Signs of Weaker UK Inflation May Dent GBP/TRY Exchange Rate

GBP exchange rates remain vulnerable ahead of tomorrow’s Bank of England (BoE)/TNS inflation attitudes survey.

If the survey highlights a deterioration in domestic confidence and weakening inflation expectations this could prompt the Pound to reverse some of its recent gains.

Evidence of softening inflationary pressure would give BoE policymakers further incentive to leave interest rates on hold for the foreseeable future, to the detriment of the GBP/TRY exchange rate.

A slowdown in the latest Halifax house price index may put additional pressure on the Pound, with the UK housing market having already shown signs of faltering.

As long as the UK economy continues to display signs of weakening in the face of Brexit-based uncertainty this is likely to limit support for GBP exchange rates.

Contracting Turkish Growth to Drive Further TRY Exchange Rate Weakness

Confidence in the Turkish Lira could deteriorate further next week, with expectations for the third quarter Turkish gross domestic product muted.

As investors expect to see a sharp contraction in growth on the quarter, stemming from political concerns and rampant inflationary pressure, this could weigh heavily on TRY exchange rates.

While the economy has the potential to recover to at least some degree in the fourth quarter any signs of weakness here are likely to extend the Lira’s slump further.

The relative strength of the US Dollar (USD) and market worries over the global trade outlook could also keep the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate pushing higher in the days ahead.

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Hannah Wilson

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