Pound Turkish Lira (GBP/TRY) exchange rate strikes fresh record high as rate hikes bite

Pound Turkish Lira (GBP/TRY) exchange rate climbs amid Turkey economy woes

The Pound Turkish Lira (GBP/TRY) exchange rate hit a new all-time high of ₺38.4894 earlier this morning, before trimming its gains. The upside comes as tensions in the Middle East and worries about Turkey’s cooling economy weigh on the Turkish Lira (TRY).

At the time of writing, the GBP/TRY exchange rate is trading at ₺38.4258, up 0.3% on the day.

Turkish Lira (TRY) extends selloff amid economic concerns

The Turkish Lira has continued its rapid decline in recent weeks, with the currency facing an ongoing devaluation since President Recep Tayyip Erdoğan announced an overhaul of economic policy after his re-election in May 2022.

The measures introduced since then are designed to combat hyperinflation in Turkey, with the Central Bank of the Republic of Türkiye (CBRT) embarking on an extreme policy tightening cycle. Since May, the bank has hiked interest rates up from 8.5% to 42.5%.

This long-term strategy to get Turkey back onto a sustainable trajectory is beginning to bite, as these huge interest rate rises take time to feed through. Recent data indicates that tighter monetary policy is chilling the economy.

In addition, the Lira faces fresh pressure amid the ongoing crisis in the Middle East. Disruption to shipping in the Red Sea could push inflation even higher, which in turn may draw out the country’s economic crisis.

Amid this bleak backdrop, the Lira has continued to plunge.

Pound (GBP) supported by BoE rate expectations

Meanwhile, the Pound (GBP) has enjoyed support in recent days amid expectations that the Bank of England (BoE) will hold UK interest rates higher for longer.

The BoE has maintained its narrative that it is not considering cutting interest rates any time soon, with the bank’s Governor, Andrew Bailey, reinforcing this yesterday.

Speaking to the House of Commons Treasury Select Committee, Bailey reiterated that the bank is focused on returning inflation to its target range, implying that rate cuts remain off the table for now.

This, paired with recent upbeat UK spending and service sector data, continues to make GBP an attractive currency to investors.

GBP/TRY exchange rate forecast: UK GDP to push the Pound higher?

Looking forward, the Lira’s fortunes are unlikely to improve significantly any time soon. However, there are some factors that could help to stem the currency’s losses.

Today, the CBRT will hold an inaugural ‘investor day’ in the US, at the New York headquarters of J.P Morgan. Turkey’s economic team will deliver presentations on monetary and fiscal policy and the economic outlook in order to woo US investors.

Any positive developments from the meeting could lend the Lira some much-needed support.

That said, the ongoing devaluation in the Lira may persist for some time as hefty interest rate hikes continue to bear down on the Turkish economy. Furthermore, any deterioration in the Middle East crisis could pile more pressure on TRY exchange rates.

As for the Pound, UK GDP data tomorrow could provide Sterling with a lift. Forecasters expect the UK economy to have rebounded in November, after October’s decline. If the data prints as anticipated, GBP could climb.

Samuel Birnie

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