Pound Turkish Lira (GBP/TRY) Exchange Rate to Plunge From Record Highs on Erdoğan Election Defeat?

Pound Turkish Lira Exchange Rate Volatile ahead of Vote

The Pound Turkish Lira (GBP/TRY) exchange rate is highly volatile this week in the build up to Turkey’s presidential election this weekend.

At the time of writing the GBP/TRY exchange rate is trading at around ₺24.6404. Just below the record high of ₺24.7671 struck on Wednesday.

Turkish Lira (TRY) Poised to Rally on Kılıçdaroğlu Victory?

Trade in the Turkish Lira (TRY) is growing increasing erratic this week in anticipation Turkey’s impending presidential election could lead to some dramatic swings in the currency.

After two decades in power, recent polls suggest Turkey’s president, Recep Tayyip Erdoğan could be ousted by a united opposition led by Kemal Kılıçdaroğlu.

In recent years Erdoğan has overseen a dramatic collapse in the value of the Turkish Lira. Which struck new record lows against the Pound (GBP) and US Dollar (USD) earlier this week.

The plunge in the Lira has come as Erdoğan eroded the independence of the Central Bank of the Republic of Türkiye (CRT) and pursued an unorthodox policy of cutting interest rates despite skyrocketing inflation.

A victory for the opposition could help to reverse the fortunes of the beleaguered Lira. Many investors believe Kılıçdaroğlu would usher in a return to orthodox economic policies and central bank independence.

At the same time, observers warn Kılıçdaroğlu’s fragile alliance of parties is at risk of imploding once in government. Potentially leading to any upside in TRY exchange rates to be short-lived.

Analysts at Commerzbank predict:

‘If Erdoğan wins, we expect [TRY] exchange rates to ultimately break out of its recent low-volatility state produced using regulations and numerous capital controls.

‘If the opposition Nation’s Alliance wins, the market reaction will likely be sharply positive initially. But the coalition is made up of smaller parties, which came together only to oust Erdoğan. The market’s enthusiasm could fade if the coalition were to run into cooperation or policy implementation challenges, which would remind markets that Erdoğan can return to power.’

TRY investors also face the possibility of the election dragging out until the end of the month. If neither Erdoğan or Kılıçdaroğlu are able to secure 50% of the vote, a runoff will be held in a couple of weeks.

Pound (GBP) Subdued Ahead of BoE Rate Decision

The Pound (GBP) is trapped in a narrow range so far this morning, ahead of the Bank of England’s (BoE) latest interest rate decision.

The BoE is widely expected to raise rates by 25bps when it concludes its May policy meeting later this afternoon.

Any subsequent movement in the Pound is likely to be driven by the BoE’s policy outlook.

If the bank leaves the door open to additional rate hikes Sterling could surge.

Pound Turkish Lira Exchange Rate Forecast: Weak UK GDP to Weaken Sterling?

The Pound Turkish Lira (GBP/TRY) exchange rate could face headwinds at the end of this week with the publication of the UK’s latest GDP release.

Friday’s figures are expected to report a modest 0.1% expansion of growth in the first quarter. However, there is a clear risk of GDP undershooting expectations.

If growth is shown to have stalled at the start of 2023, expect to see Sterling slump.

Matthew Andrews

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