Opportunity for Greater GBP/TRY Exchange Rate Gains on UK Services Sector Growth
The Pound (GBP) has risen by 0.7% against the Turkish Lira (TRY) today, hitting a level of TRY8.5844.
This is near the GBP/TRY exchange rate’s historic high of TRY8.9373, which was hit in mid-August when the current Turkish economic crisis erupted.
The latest UK economic news hasn’t supported this TRY/GBP exchange rate rise, with August’s UK construction PMI showing a disappointing monthly slowdown.
UK PMI data could be much more supportive on Wednesday, when August’s services sector reading might boost the GBP/TRY rate by showing higher monthly activity.
The services sector is the single largest contributor to UK economic growth, so a forecast-matching rise might bring additional GBP/TRY gains.
It is worth noting that a faster pace of services sector activity is not guaranteed, so if the reading shows a surprise decline then the Pound could fall sharply.
Risk of Future GBP/TRY Exchange Rate Losses on Higher UK Unemployment Rate
While Wednesday’s UK services sector PMI could improve the GBP/TRY exchange rate, next week’s first major UK data could bring clear losses for Pound Sterling.
This will be 11th September’s unemployment rate reading for July; a moderate rise in the jobless rate from 4% to 4.2% has been forecast.
Although this would leave the UK with a historically low level of unemployment, any signs that the jobless rate is creeping back up could still damage Pound demand.
Turkish Lira Outlook: Emergency Action from Turkish Central Bank could Improve TRY/GBP Trading
The Turkish Lira’s (TRY) recent decline against the Pound (GBP) is not exclusive; the Turkish currency has been making historic losses against most regular currency peers.
This poor performance is down to uncertainty about the independence of the Turkish central bank (TCMB), which has led to an economic crisis and a much weaker Lira.
The main issue is how much control Turkish President Recep Tayyip Erdogan has over the TCMB.
Some believe that Mr Erdogan is preventing the TCMB from raising interest rates to combat rising inflation; the inflation rate in August recently hit a worrying 17.9%.
If the TCMB takes emergency action to prevent further Turkish price growth via a large interest rate hike then the Lira could start to recover in value.
This is a considerable ‘if’, however, as President Erdogan has colourfully described high interest rates as a ‘curse’ and the ‘mother and father of all evil.’
The President gained sweeping new powers in July 2018 after he was sworn in as ‘Executive President’ and he may continue to clamp down on future TCMB activity.
If the TCMB continues to leave interest rates unchanged, regardless of who made the decision, then the Turkish Lira’s losses against the Pound could intensify.