Pound Turkish Lira (GBP/TRY) Exchange Rate Pushes Towards ₺30 as Lira Undergoes ‘Intentional Devaluation’

Pound Turkish Lira (GBP/TRY) Exchange Rate Continues to Rocket Higher

(Updated 16:45, 08/06/23) The Pound Turkish Lira (GBP/TRY) exchange rate continues to push record highs as the Turkish government rolls back state controls on the value of the Turkish Lira (TRY).

At the time of writing, GBP/TRY is trading at ₺29.4551, up 2% on the day and 14.5% on the week, having hit an earlier all-time high of ₺29.6194.

The Lira is likely to plunge further over the coming weeks, although an emergency interest rate hike from the Central Bank of the Republic of Türkiye (CRT) could temporarily stem the losses and inject GBP/TRY with volatility.

Turkey had been intervening heavily in foreign exchange markets to keep a floor under its currency, draining its foreign currency reserves of tens of billions of US Dollars (USD) to stabilise the Lira. The measures came after a highly unorthodox approach to economic policy saw the currency collapse.

Now, reelected President Recep Tayyip Erdoğan has signalled a return to economic orthodoxy. Erdoğan appointed Mehmet Şimşek, a former deputy prime minister who is well regarded by financial markets, as economic minister. Şimşek immediately singalled a return to ‘rational’ financial policy.

The government’s intervention in foreign exchange markets seems to be coming to an end. This has seen the Lira, no longer artificially propped up, plunge closer to its true market value.

What Next for GBP/TRY?

As the measures are wound back, expect GBP/TRY to hit new record highs as the Lira crumbles. The Pound Lira pair could soon break past ₺30 – possibly by the end of the week.

Turkey’s central bank – led by a new Governor, perhaps US-based finance executive Hafize Gaye Erkan – could step in to deliver an emergency interest rate hike in an attempt to staunch the bleeding. This may temporarily lift the Lira, sparking volatility, but is unlikely to prevent TRY from falling further.

The future looks very precarious for the Turkish Lira. The mammoth change in policy ahead could lead to more economic pain in the near term. This raises political issues, as Erdoğan may become frustrated with the progress made and return to his previous unorthodox approach. Expect volatility in GBP/TRY and further losses for the Lira.

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Pound Turkish Lira (GBP/TRY) Exchange Rate Approaches ₺30

(Updated 17:00, 07/06/23) The Pound Turkish Lira (GBP/TRY) exchange rate continued to strengthen today, hitting a fresh all-time high of ₺29.1261, amid expectations that the Turkish government would roll back measures designed to keep the Turkish Lira (TRY) afloat.

After securing a third presidential term last week, Recep Tayyip Erdoğan has signalled plans to abandon his unorthodox approach to economic policy. Part of his previous approach used various financial measures to shore up the Lira, and analysts now expect Erdoğan’s new treasury minister, Mehmet Şimşek, to unwind these measures.

On Wednesday, there were signs that Turkish state banks were no longer intervening in markets to artificially prop up the Lira. As the government loosens its currency control interventions, TRY is starting to spiral towards its ‘real’ value. Speaking on condition on anonymity, one executive at a Turkish bank said that the decision amounted to ‘intentional devaluation’.

The Lira is likely to continue its depreciation in the coming days and weeks, as more state intervention is unwound. If Erdoğan sticks to a more orthodox economic approach, TRY could eventually begin to recover in the long run. However, significant risks remain, as the path out of Turkey’s current financial crisis is littered with economic and political landmines. If the President changes his mind again, TRY could continue to suffer.

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Pound Turkish Lira (GBP/TRY) Exchange Rate Soars as Investors Anticipate New Turkish Policy Approach

The Pound Turkish Lira (GBP/TRY) exchange rate surged to a fresh all-time high today amid expectations that Turkey’s new finance minister will unwind government measures that are currently propping up the currency.

At the time of writing, GBP/TRY is trading at around ₺28.9129, up a whopping 6.7% on the day, having earlier hit a record high of ₺28.9989. The currency pair is up more than 12% since President Recep Tayyip Erdoğan’s reelection last week.

Looking ahead, the Turkish Lira (TRY) could continue to nosedive in the near term. But despite the likelihood of more volatility ahead, but some anlaysts are hopeful that this could be the start of a long, rocky road to the Lira’s recovery.

Turkish Lira (TRY) Slides as Government Set to Loosen Stabilising Measures

The Turkish Lira plunged today, spiralling to new record lows, as the Turkish government looks set to dismantle policies that have been artificially keeping the currency afloat.

Following his electoral victory a week ago, President Erdoğan appears to be abandoning the unorthodox approach to economic policy that has plunged his country into an economic crisis and saw the Lira collapse. Erdoğan’s newly appointed finance minister, Mehmet Şimşek, has vowed a return to ‘rational’ economic policies.

Investors have reacted favourably to Şimşek’s appointment, as the former deputy prime minister is seen as a safe pair of hands. However, the shift represents a titanic about-turn in economic policy.

Şimşek’s predecessor had sought to stem the selloff in the Lira by artificially propping up the currency through policy, including central bank interventions and restrictions on foreign currencies. While this put a floor under the Lira, it drained Turkey’s already-low foreign exchange reserves and deterred foreign investment.

Anticipation that the government will unwind these policies has put the Lira into freefall. The currency is plunging towards its ‘true’ value, rather than the artificial levels maintained by interventional measures.

Pound (GBP) Potential Capped amid Lack of Data

Meanwhile, the Pound (GBP) is underpinned by Bank of England (BoE) interest rate rise bets. However, thin UK trading conditions are preventing the Pound from pushing even higher against the Lira.

Market-moving British economic data remains absent today, following a quiet calendar last week. This is subduing Sterling’s movement against many of its peers, and may be capping GBP/TRY’s gains.

GBP/TRY Exchange Rate Forecast: Lira to Fall Further before Beginning Rocky Recovery

The outlook for the Turkish Lira remains volatile. In the short-term, new record lows are on the horizon. Taking the longer view, a return to economic orthodoxy may usher in a long road to recovery for the Lira. However, uncertainty remains.

If and when currency control measures are removed, the Lira could plumb new depths. Traders should keep a close eye on policy announcements from the Turkish government and treasury, as TRY is likely to collapse as supporting policies are repealed.

Attention then turns to the medium-term outlook for economic policy. A restoration of the independence of the Central Bank of the Republic of Türkiye (CRT) could begin to rebuild investor confidence in the currency, while aggressive interest rate hikes to start bringing inflation under control could add to TRY’s upside.

However, there remains a risk that Erdoğan will abandon this return to economic orthodoxy. Such a huge shift in policy will be politically difficult. Further weakness in the Lira could temporarily lead to higher inflation, while raising interest rates could hammer households and businesses.

There is a very real threat that Erdoğan will lose his nerve. The President fired CRT Governor Naci Agbal in 2021 after he raised interest rates, so there are fears that – if raising rates proves politically unpopular – Erdoğan could pin the blame on Şimşek or the CRT and return to his unorthodox ways. These worries could keep a lid on the Lira.

Samuel Birnie

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