The Pound Sterling to Turkish Lira (GBP/TRY) exchange rate continued to strengthen as market attention shifts to Wednesday’s Bank of England policy meeting minutes release and the USA’s Federal reserve policy meeting.
The Lira’s move lower is on expectations that the Fed is planning an interest rate hike after its monetary policy meeting. Higher U.S. interest rates could spur an outflow of capital from many emerging markets, including Turkey, where private sector- foreign debt is now at $165.2 billion.
Earlier the Pound Sterling to Turkish Lira (GBP/TRY) exchange rate strengthened by more than 1% on Tuesday despite the release of weaker than forecast UK inflation data.
The Lira has tumbled this week due to political concerns after Turkish President Tayyip Erdogan ordered the detention of a number of journalists at the weekend and criticised the European Union.
The arrests came after Erdogan re-escalated his battle with the movement of long time enemy Fethullah Gulen, a former Islamic ally turned foe. Police detained at least 20 people at media groups linked to the U.S.-based Gulen, accused by Erdogan of plotting against the government.
‘Political risk draws attention to Turkey’s domestic and external weaknesses, particularly at a time when sentiment towards risk assets is deteriorating markedly. What’s patently clear is that the Turkish Lira remains one of the most vulnerable emerging market currencies,’ said Nicholas Spiro, managing director at Spiro Sovereign Strategy.
On Monday, the Lira tumbled to its lowest level on record against the US Dollar and continued to decline on Tuesday as falling oil prices and disappointing data out of China weighed upon demand for riskier assets.
Sentiment towards the Lira turned even more negative after Erdogan gave a combative speech blasting the European Union for criticising the arrests.
Further pessimism also came from poor Turkish jobless figures for September released Monday, which showed a 10.5% unemployment rate, the highest figure since February 2011.
UK Inflation Fall a Positive?
The Pound meanwhile shrugged off data, which showed that inflation in the UK fell to its lowest level since 2002. Economists shifted their usual stance and saw the fall as a positive for consumer spending and wage growth.
‘Falling oil prices have helped push inflation to its lowest level since 2002. This is a welcome early Christmas present to millions of families across the country. And, as the Liberal Democrat Treasury Minister, I am determined that the continuing oil price falls will be passed on to consumers as quickly as possible and in full,’ said Danny Alexander, coalition chief secretary to the Treasury.
The inflation report released by the London based Office for National Statistics (ONS) showed that the nation’s consumer price index fell to a rate of 1% in November, down from the 1.3% in October and was below forecasts for a figure of 1.2%.
The Pound to Turkish Lira exchange rate is forecast to advance further on Wednesday if the latest unemployment data comes in positively.
