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Pound Turkish Lira (GBP/TRY) Exchange Rate Soars as BoE Points to Sooner-Than-Expected Rate Hike

February 8, 2018 - Written by John Cameron

Hawkish BoE Prompts Surge in GBP/TRY Exchange Rate

The Pound Sterling Turkish Lira (GBP/TRY) exchange rate soared on ‘Super’ Thursday as markets reacted to an optimistic and slightly hawkish Bank of England (BoE) rate decision.

The central bank maintained the key interest rate at 0.50% - as markets largely expected – though they also updated their growth forecasts for 2018/19, predicting that the UK economy will expand faster than previously thought.

The updated forecasts were as follows:

- 1.8% in 2018 (vs 1.6% previous)
- 1.8% in 2019 (vs 1.7% previous)
- 1.7% in 2020 (vs 1.7% previous)

Beyond this, the Monetary Policy Committee’s accompanying statement featured some additions that suggested that a rate hike might be warranted sooner-than-expected – as long as the UK’s economy continues to develop along the lines of projections.

A key section of the statement read:

'Were the economy to evolve broadly in line with the February inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report’.

Economists have asserted that this is an indication that the bank is actively considering a rate hike as early as May.

In other key takeaways the bank espoused positivity in respect to wage growth, inflation, the UK’s jobs market and indeed global growth – with acceleration in the global economy liable to help support the UK’s own.

Overall the first rate BoE rate decision of 2018 was largely positive, though the bank did point to ongoing uncertainty on the Brexit front as a key deciding factor in future decisions - with a lack of progress liable to stifle investment and thus, stifle growth.

Upbeat Turkish Ecostats Fail to Bolster Lira (TRY) Exchange Rates

Turkey had a run of robust domestic data releases today, including above-forecast rises in industrial production and retail sales.

According to Turkstat, Industrial production growth quickened unexpectedly in December, rising 8.7% year-on-year, smashing the previous period’s 7% and the forecast of 6.4%.

On a monthly basis, industrial production rose by 0.9%, up from November’s disappointing 0.2%.

In other news retail sales growth in Turkey jumped to 5.4% month-on-month in December, up from 4.1% in November and smashing the forecast of 4.5%.

This news boded well for the state of the Turkish economy, though markets will largely be waiting for next Wednesday’s current account readings and unemployment rate figures.

GBP/TRY Exchange Rate Forecast: UK Trade Balance Ahead

Markets will soon shift their attention to tomorrow’s elaborate run of UK ecostats, with industrial production, manufacturing production, construction output and the UK’s trade balance all soon to be assessed by markets.

Economists currently forecast that the UK’s trade deficit will shrink from -£2804 to -£2400, but the outlook for the run of private sector readings is quite poor.

Construction in December is expected to slip from 0.4% year-on-year to -1.9%, manufacturing from 3.5% to 1.2% and industrial production from 2.5% to 0.4%.

With today’s BoE decision containing so many optimistic/hawkish soundbites it is still highly possible that the Pound Sterling Turkish Lira (GBP/TRY) exchange rate could remain resilient to a run of poor ecostats, however, extending its rally into the week’s end.
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