GBP/TRY: As the pound to lira soars, how high can it go?

on Jun 5, 2023
  • The GBP/TRY pair jumped to an all-time high after the latest Turkish inflation data.
  • The headline consumer and producer inflation data dropped again in May.
  • There are concerns about Turkey’s administration and falling reserves.

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The pound to Turkish lira soared to a record high on Monday even after Turkey’s inflation continued retreating. The GBP/TRY pair jumped to a high of 26.28, bringing the year-to-date gains to over 16% It has jumped by 28% in the past 12 months. Similarly, the USD/TRY pair has soared to a record high. 

Turkish inflation slipped

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The Turkish lira has been in a strong bearish trend in the past few months as concerns about the economy continued. The biggest issue among investors is that President Erdogan’s rule will push the country deep into turmoil.

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Erdogan is different from most presidents because of his strong grip of the Central Bank of the Republic of Turkey (CBRT). Instead of letting the bank operate independently, the president dictates its measures by advocating low-interest rates even as inflation remains sharply higher.

Erdogan has made some changes recently. For example, he appointed a respected economist as the Finance minister, signaling that his new administration was considering changes. However, analysts warn that past reformers faced a president who strongly believes in low-interest rates.

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The biggest GBP/TRY forex news on Monday was the latest Turkish inflation numbers, which reflected the recent giveaways by Erdogan. According to the statistics agency, the headline consumer price index (CPI) dropped to 39.58% in May from the previous 43.68%. On a MoM basis, the CPI dropped to 0.04%. The producer price index dropped to 40.76% from last year’s high of 52.11%. 

Still, while Turkey’s inflation has dropped in the past consecutive months, it remains much higher than that of most countries. It could also remain sharply higher if the CBRT fails to hike interest rates in the coming meetings.

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GBP/TRY technical analysis

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GBP/TRY chart by TradingView

The GBP/TRY exchange rate has been in a relentless bull run for months. During this rally, the pair crossed several milestones. Most recently, it moved above the psychological level of 25. The pair has also remained comfortably above the 50-day and 100-day moving averages.

Because of the relentless bull run, the pair has become extremely overbought as the Relative Strength Index (RSI) has surged above the overbought level. Therefore, using trend-following principles, the pair will likely continue rising. 

The only change that can lead to a reversal is if Erdogan was to promote an independent CBRT and open the economy to foreigners. In the past, foreigners in Turkey have been afraid of capital flight rules meant to stabilize the currency. As a result, foreign direct investments and foreign reserves have tumbled. Foreign reserves stands at about $58 billion.

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