The Turkish Lira (TRY) was little-changed against the Pound Sterling (GBP) on Monday as investors look ahead to Thursday’s Bank of England policy meeting.
Data released by the Turkish Statistical Institute showed that the rate of inflation in Turkey rose in July by 9.32%, marking the fourth consecutive time that the inflation has come in above the 9% level.
The inflation increase took economists by surprise as most economists had been forecasting for a rate between 8.9 and 9.2%.
The increase in the inflation rate was as a result of an increase in food prices.
A drought which affected large amounts of the country impacted on the amount of produce and therefore caused prices to rise.
Analysts said that the second quarter of the year was the worst for food prices in history.
The Turkish Central Bank announced that it wasn’t too concerned with the rising inflation rate as it forecasts that the inflation rate will ease to around 7.6% at the end of the year as the Lira gains in strength and the introduction of a firmer monetary policy.
The Turkish Central Bank is under political pressure to make even sharper cuts in rates. Prime Minister Recep Tayyip Erdoğan has repeatedly called for sharp cuts to reverse the central bank’s massive rate hike in January, when it was struggling to defend a tumbling lira.
‘All this will further put the spotlight on the central bank’s rate policy, and their continued very dovish stance. Cutting policy rates while the headline CPI is still close to double the official target,’ said Timothy Ash from Standard Bank.
The Lira could come under pressure from heightening tensions between Armenia and Azerbaijan. 18 soldiers were killed in the deadliest standoff between the two former soviet nations in twenty years.
Armenia is located on Turkey’s eastern border and with the conflicts in Iraq and Syria also raging the region looks increasingly unstable.
UPDATED 15:31 GMT August 6, 2014
Due to increased concerns over geo-political issues, the Pound advanced further against the Turkish Lira.
Emerging market currencies have come under increased pressure as investors favour safe haven currencies, such as the US Dollar.
Concerns over a build-up of Russian forces on the Ukrainian border have increased concerns that Russia could intervene directly in the conflict between the pro-Western Ukrainian government and pro-Russian separatists.
Polish Prime Minister Donald Tusk said on Wednesday that his assessment is based on information he has been receiving for the past dozen hours or so. He did not elaborate.
“The threat of a direct intervention by Russia into Ukraine is greater than it was a few days or a couple of weeks ago,” he said.
Also weighing upon the Lira are heightened tensions on the Eastern border of Turkey as Armenia and Azerbaijan continuing to face off over disputed territory. Iraq also borders Turkey and the conflict there is continuing to escalate.
The UK was able to advance despite the release of data, which showed that manufacturing production and shop prices came in below economists’ expectations.
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