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Market Update - GBP TRY 27th July 2009

The much awaited European bank stress tests were completed on Friday. All major banks passed the tests including the four major UK banks that took part. Also giving the pound a boost on Friday was a strong second quarter GDP figure. Growth came in at 1.1%, nearly double the 0.6% that analysts had been expecting. Also beating market expectations were June retail sales, which rose 0.7% against 0.5% expected.

Tempering the positive mood a report from Hometrack showed a 0.1% fall in house prices in July, and predictions of further modest price falls in the second half of the year. A general feeling that the government’s austerity measures will dent growth is also lingering over sterling and limiting gains.

Turkish central bank governor responded to criticism last week as exporters argued that the Turkish currency should be fixed rather than free floating. Arguing that in real terms the currency index has been relatively stable since 2003, the governor said that “Turkey has protected its competitive force in foreign trade.”

David Cameron was in Turkey yesterday meeting his counterpart, and delivered a speech strongly backing Turkey’s bid to join the EU.

Data for the week ahead is light on the UK front, with mortgage approvals and consumer confidence figures likely to attract the most scrutiny on Thursday. On the other side of the channel the main items are German retail sales (Tue’) inflation data (Wed’) and unemployment (Thur’).

Market Update - GBP TRY 10th August 2009

Sterling is now struggling after making solid gains against the Lira over the second quarter, rallying from a low of 2.22 up to highs of 2.40 on July 1st (based on the interbank rate). Since the turn of the month the Lira has rallied along with the Euro after both currencies suffered big falls in late June. The Lira has performed better than the Euro, which has been dogged by sovereign debt worries and offers a yield of just 0.5% compared to the 6.5% Turkish central bank rate. That higher yield has helped the Lira maintain come composure against the Pound, which has strengthened against most currencies on a wave of optimism since the emergency budget in late June.

This Friday should see the release of the much awaited European bank “stress tests” which are designed to assess the credit worthiness and financial health of the continent’s largest banks. The Euro has been rallying in anticipation that the results will be reassuring to investors. A positive result and a further Euro rally would likely drag the Lira higher, so we advise clients with Lira requirements to consider hedging at least part of your exposure before Friday’s announcement.

The technical outlook is precarious. Sterling has challenged the key resistance at 2.40 over the last few weeks. This level proved too much in February and again in May, and so far the barrier has repelled the Pound again in July. A break below 2.33 (last week’s low) would signal a probably end to the upward trend that began when we bounced from 2.22 in May.

Market Update - GBP TRY 10th August 2009

The Turkish Lira outperformed Sterling through July as the stock market rally spurred investors to take risks and pile into high yielding assets. At 8.25%, the Turkish base rate is attractive as long as economic recovery hopes are high.

Sterling fell sharply last week after the Bank of England announced an increase in quantitative easing from the £125bn already spent, up to £175bn, an extra £50bn of spending. Most economists are welcoming the move, but that doesn't help the pound, which fell as soon as the announcement hit the news wires. The shadow monetary policy committee had previously recommended extending the programme by "between £75bn - £300bn", but most market watchers expected the BoE to simply release the £25bn balance that they still had in the pot.

Given the Lira's propensity to perform well as investor risk appetite increases, it looks like the exchange rate could decline further in the short term. Sterling has clearly found it difficult to breach the 2.60 level over the last few months, and we are now heading toward trend support around 2.40. A break below there would suggest a move back to the April/May lows at 2.30. Clients should consider covering any requirements now to avoid the risk of further downside.

Market Update - GBP TRY 7th April 2009

The Turkish Lira rallied last week after reports that previously suspended loan talks with the IMF will be resumed, which could help Turkey's economy during the current downturn.  Disagreements in January caused a break in the talks.

  Also helping the Lira was the G20 summit, in which leaders allowed for over $1 trillion of new money to help poorer economies.  Meanwhile, sterling has been faring better against most major currencies, although the Lira's strength has overshadowed that of the pound, resulting in a 2% decline in the pound/lira rate last week.  The Lira, being a "high yielding" currency was particularly vulnerable during the latest stock market falls in February and early March, but has since rebounded along with stocks as risk appetite returns to the markets, prompting previously risk averse investors to seek higher yields than those currently offered by the US dollar and Yen.

  The technical outlook is unclear.  This is one of the messiest currency charts around, and does not give any strong clues at to the current trend.

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