Pound to Turkish Lira (GBP/TRY) Exchange Rate Forecast

The Pound to Turkish Lira (GBP/TRY) exchange rate has been trading in a narrow range on Thursday after the Bank of England (BoE) decided to keep interest rates on hold and Turkey’s Retail Sales fell. The GBP to TRY exchange rate is currently trending in the region of 3.6567.

Turkish Retail Sales contracted by -0.1% in August after July’s 0.5% growth. Economists were expecting another 0.5% expansion in August, but it never materialised.

At present the Turkish Lira is struggling as conflict in Southeast Turkey is acting as a deterrent to investors. Wednesday’s US Federal Reserve meeting minutes allowed the Turkish Lira to gain some ground against other majors as markets adjusted to the possibility of later-than-anticipated interest rate hikes in the US.

Investors ventured away from the US Dollar (USD) after the minutes were released and turned instead to emerging-market currencies such as the Lira. However, conflict in Turkey is threatening to sabotage talks attempting to end decades of violent fighting with Turkish Kurds.

The Kurds have been actively protesting against the response of the government with regards to Islamic State militants. The predominantly Kurdish town of Kobani which resides just over the Syrian border is currently at risk to be taken by Islamic State militants.

The appeal of the Lira is becoming increasingly compromised as the Kurdistan Workers’ Party (PKK) grows unsettled, a situation which could potentially end the present peace process and bypass the ceasefire against the government.

Forex expert Paul McNamara commented: ‘If the PKK starts shooting again, that undermines one of the real signature achievements of the AKP [Justice and Development Party] in power. Over the medium-term it would be a significant negative for Turkish assets.’

However, the US is also growing tired of the Turkish government’s lack of action against ISIS (Islamic State of Iraq and the Levant). A US official stated: ‘There’s growing angst about Turkey dragging its feet to act to prevent a massacre less than a mile from its border. After all the fulminating about Syria’s humanitarian catastrophe, they’re inventing reasons not to act to avoid another catastrophe.’

The official continued: ‘This isn’t how an ally of NATO acts while hell is unfolding a stone’s throw from their border.’ For now, any escalations in geopolitical tensions will encourage the Lira lower.

Meanwhile, the Bank of England kept their benchmark interest rate the same at 0.50% on Thursday as the Eurozone’s faltering economy weighs on British growth. Recent speeches from BoE officials have confirmed that Governor Mark Carney is not alone in believing that the UK needs to wait before increasing interest rates.

The recent slowdown in Europe is hindering the UK economic recovery, and after a string of unfavourable UK data the central bank was predicted to keep rates low. Economist Victoria Clarke commented: ‘The deterioration in Europe will be on their radar. Any further softening in the data may be a final nail in the coffin for any speculation, including our own, of a November rate hike.’

Friday may be influential for the Pound as Bank of England officials are scheduled to speak in Washington. Any hawkish statements from policymakers could offer the Pound support. Friday will also see Turkish Industrial Production data released which is forecast to rise by 4.1% in August on the month after July’s 3.6% gain. The UK Total Trade Balance will also be published on Friday. The nation’s deficit is expected to shrink.