GBP/TRY Exchange Rate Climbs to Historic Highs Following Collapse of the Turkish Lira
The Pound Turkish Lira (GBP/TRY) exchange rate is trading at record highs this morning as the recent run on the Lira shows no signs of abating.
At the time of writing the GBP/TRY exchange rate is trading at around TRY17.4895.
Turkish Lira (TRY) Plunges as Erdoğan Vows to Keep Cutting Interest Rates
After plunging last week after the Central Bank of the Republic of Turkey (CBRT) cut interest rates to 15%, the collapse of the Turkish Lira (TRY) has deepened this week following some combative comments from Turkish President Recep Tayyip Erdoğan.
Speaking on Tuesday night Erdoğan defended the CBRT’s recent rate cuts as he declared himself to be a an ‘enemy’ of higher borrowing costs and vowed to win an ‘economic war of independence’.
Erdoğan rejects traditional economic theory which suggests higher interest rates help to curb inflationary pressure, with the President sacking two deputy governors of the CBRT back in October after they resisted his calls for further interest rate cuts.
Analysts warn that the Turkish Lira could have even further to fall as any notion of the central bank’s independence has been consigned to history and Erdoğan is likely to continue his crusade against higher borrowing costs.
Brad Bechtel, Global Head of FX at investment bank, Jefferies comments:
‘The spark for [the Lira’s losses] seems to be Erdoğan’s speech in which he declared an ‘economic war of independence’ and praised recent interest rate cuts.
‘The central bank is a puppet of the government at the moment, inflation is running at 20% year-on-year and you have Erdoğan at the controls, which means that we are likely not even close to done with this move yet.’
Despite the rate cuts, inflation in Turkey is currently running at around 20% year-on-year and shows no sign of abating anytime soon.
Pound (GBP) Undermined by Brexit Uncertainty
While it is enjoying strong gains against the Turkish Lira, the Pound (GBP) is struggling to replicate this success against the majority of its other peers this morning, amidst ongoing Brexit uncertainty.
Talks between the UK and EU regarding the Northern Ireland protocol remain deadlocked, and European Commission, vice-president Maroš Šefčovič warns that negotiations could drag into 2022.
The prospect of prolonged uncertainty will no doubt disappoint GBP investors, many of whom hoped talks could be wrapped up before Christmas.
GBP/TRY Lira Forecast: Turkish Lira Selling Bias to Remain Firmly Entrenched?
Looking ahead to the latter half of the week, the Pound Turkish Lira (GBP/TRY) exchange rate looks likely to push to new record highs as the Lira selling bias looks to remain firmly in place, so long as the prospect of further interest rate cuts from the CBRT remain.
Potentially aiding the appreciation of Sterling will be the publication of the Confederation of British Industry’s (CBI) latest industrial orders release later this morning, which is expected to report an acceleration of order growth this month.