The Turkish Lira (TRY) Sinks on Increasing Central Bank of Turkey Rate Cut Odds
The Pound Turkish Lira (GBP/TRY) rose by 0.8% today, with the pairing currently trading around ₺7.938 after Turkey’s inflation report for February fell below forecasts from 1.35% to 0.35%, while the year-on-year figure rose slightly to 12.37%.
Muhammet Mercan, Chief Economist for Turkey at ING, commented:
‘[The Central Bank of Turkey (CBRT)] will likely be more cautious in the near term on the back of the nervousness in global financial markets regarding coronavirus, rapidly increasing geopolitical risks in addition to stickier inflation readings and the low real rate buffer.’
The Turkish Lira (TRY) has continued to struggle against its peers after yesterday saw it briefly dip to its weakest level in 17 months due to persistent fears over the global spread of the coronavirus (Covid-19) and the ongoing conflict in Syria.
This follows Sunday’s reports that Turkey had shot down two Syrian warplanes which struck a military airport beyond its frontiers. As a result, market appetite for the Turkish Lira remains compromised over growing fears of escalation over the Turkey-Syria conflict.
The Pound (GBP) Exchange Rate Rises as UK Construction PMI Beats Forecasts
The Pound (GBP) edged higher against the Turkish Lira (TRY) following today’s stronger-than-expected UK Markit Construction PMI, which rose from contraction territory of 48.4 to 52.6.
Tim Moore, Economists Director at IHS Markit, was downbeat in his analysis, saying:
‘While construction order books have begun to recover in the opening part of 2020, the fly in the ointment is the uncertain impact of the coronavirus outbreak on UK economic growth prospects. A renewed slowdown could see domestic investment spending put back on hold and dampen the outlook for the UK construction sector.’
The strengthening British construction sector has lent some support for the Pound today, with odds of a rate cut from the Bank of England (BoE) slipping as the UK economic outlook brightens.
Sterling also continues to struggle over rising fears that the Bank of England (BoE) could slash its interest rates in the near-term. With coronavirus and an increasingly volatile global economy, the Pound’s gains are likely to be short-lived as the currency becomes increasingly risk-averse.
GBP/TRY Outlook: Could the Turkish Lira Sink Further on Rising Covid-19 Fears?
Pound (GBP) investors will be awaiting tomorrow’s release of February’s UK Markit Services PMI, which is expected to remain at 53.3. Any signs of improvement, however, could boost the GBP/TRY exchange rate as the UK’s largest sector continues to grow.
Tomorrow will also see Dr Ben Broadbent, a member of the BoE’s Monetary Policy Committee, deliver a speech. If he’s dovish about the UK economy going forward, we could see GBP compromised by growing fears of a rate cut.
The Turkish Lira (TRY) will remain sensitive to coronavirus developments and the Syria-Turkey conflict. Any signs of escalation in any one of these would weaken the TRY/GBP exchange rate.