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Pound Sterling to Turkish Lira (GBP/TRY) Exchange Rate Rises on Hopes for BoE Interest Rate Hike

August 1, 2018 - Written by Minesh Chaudhari

The Pound to Turkish Lira exchange rate opened trading on Tuesday in the region of 6.4184 and after steady appreciation during the day, closed up higher around 6.4522.

This appreciation came on a relatively quiet day in terms of economic news.

The main source of support for the GBP/TRY exchange rate was speculation that the Bank of England (BoE) could hike interest rates on Thursday.

Yesterday’s Turkish data was positive but didn’t support the TRY/GBP exchange rate – tourist arrival and tourism revenue stats both showed growth.

GBP/TRY Exchange Rate Rises on BoE Rate Hike Hopes



In a similar situation to Tuesday, the Pound has appreciated against the Turkish Lira today because of optimism that there could be a Bank of England (BoE) interest rate hike on Thursday.

UK domestic data has been comparatively unsupportive, with July’s manufacturing PMI showing a larger-than-expected slowdown in sector activity.

Seeing the results as a sign of manufacturing sector stagnation, Chartered Institute of Procurement and Supply Group Director Duncan Brock said:

‘There was a flatline feel to manufacturing this month, as the sector held its ground, but only just.

‘Overall production slowed, whilst new order growth took a leisurely pace, and it was the unbalanced reliance on export orders that kept the sector afloat with domestic clients keeping their distance.’


Turkish Lira to Pound (TRY/GBP) Exchange Rate Drops on Continued Manufacturing Sector Contraction



On the other side of the currency pairing, the Turkish Lira (TRY) has slipped against the Pound (GBP) because of the latest manufacturing sector reading.

July’s Turkish manufacturing PMI has risen from 46.8 points to 49, missing forecasts for a 52.5 point printing.

Any reading below 50 points means the sector is contracting, so while this is ‘good’ news, it still means that the sector is in difficulty.

Pound to Turkish Lira (GBP/TRY) Exchange Rate Forecast: Can Pound Sterling Rally on BoE Interest Rate Hike?



This week has been building up to Thursday’s Bank of England (BoE) interest rate decision, which could cause a GBP/TRY exchange rate rally or decline based on how policymakers vote.

As the Pound has appreciated against the Turkish Lira over the week so far, this suggests that GBP traders are banking on a rate hike from the BoE, up from 0.5% to 0.75%.

An interest rate hike from the UK central bank could push the Pound to Turkish Lira (GBP/TRY) exchange rate higher, mainly because this is seen as long overdue.

BoE policymakers cut interest rates from 0.5% to 0.25% in 2016 and returned them to 0.5% in 2017.

Because no ‘real’ rate increase occurred over that period, a hike to 0.75% on Thursday would be the first progressive increase since 2007.

It is worth mentioning that GBP/TRY gains on a BoE interest rate hike may be limited, if BoE policymakers suggest no further rate hikes in the near-future.

On the other hand, the Pound could fall sharply against the Lira if BoE officials hold off any immediate action by leaving interest rates unchanged.

This is not an impossible outcome, as a recent spate of poor UK economic data is thought by some to have lowered the likelihood of a BoE interest rate hike this month.

Beyond Thursday’s BoE event, the GBP/TRY exchange rate could also be affected by Friday’s UK services sector PMI.

Covering July, this is tipped to show a slowdown in sector activity with a shift from 55.1 points to 54.7.

The services sector is the single largest contributor to UK economic growth, so a slowdown might panic GBP traders and cause losses against the Lira.

This week’s last Turkish data could have a notable impact on the Lira – this will be Friday morning’s monthly and annual inflation rate figures for July.

On the month, the rate of price growth is tipped to slow dramatically from 2.61% to 0.9%. Annually, acceleration from 15.39% to 15.5% is anticipated.

Annual data is often considered more high-impact so the Lira could decline if the actual readings match up with forecasts.

Turkey has struggled with high inflation for several years and if the rate of price growth remains high then the Lira could slide in value.

This is especially likely because the Turkish central bank recently left interest rates unchanged instead of hiking as expected, which suggests a focus on boosting growth rather than managing inflation.
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