Turkish Lira and British Pound: The “evil” Mr Williams distorts the market

The Turkish Lira suddenly becomes stronger. Is this due to the “good” central bank policy in Turkey? More about that later. First a look at the British Pound. Yesterday there were slightly positive economic data from the UK and a decision by the parliament that the new government (under Boris Johnson) must first consult the MPs before it comes to a hard Brexit. This gave the pound some bullishness yesterday (chart GBPUSD since Monday).

Then came the speech yesterday evening by New York Fed head Williams, who confirmed expectations of interest rate cuts in the USA. Since then, everything traded against the US Dollar has risen. Pound vs. USD has thus risen from Wednesday’s low of 1.2380 to currently 1.2527. We are not analysts or investment advisors. But fundamentally (let’s just say) the weakness of the Pound is obscured or rather distorted by this external influence. The large threshold of 1.2480 in the Pound vs USD has been breached several times in recent days. Even if the price is currently higher, the path to the downside remains open when the focus returns to Boris Johnson and Brexit chaos!

Turkish Lira

The Turkish Lira is currently exposed to a purgatory of news. The Russian missiles (affront to NATO and USA) have arrived in Turkey. Therefore possible US sanctions against Turkey floated around for a long time. US President Trump recently said that the US is not currently preparing any sanctions against Turkey. But yesterday it became known that Turkey had been kicked out of the F-35 Fighter supplier alliance and that Turkey will not be delivered the fighter jets ordered. Well, this is not a sanction, but nevertheless a clear sign towards Turkey. Is this, on the whole, more a sign of détente or of continued bad blood between the two NATO partners? Everyone can read his or her argument in this regard.

But as with the Pound, NY Fed boss Williams’ speech has an effect on the Turkish Lira. The USD vs. Lira has therefore fallen from 5.68 to 5.61 (Lira revaluation). So: We should not now believe that the Turkish Lira has strengthened because of Turkish issues, but because the Dollar is weakening – thanks to the Fed! As with the Pound we should remember that as soon as Turkish issues regain the upper hand, the Turkish Lira could devalue again. We remind you of the 25th of July. Then the Turkish central bank will most probably cut interest rates noticeably. That should probably weaken the Lira. Why is it very likely that interest rates will fall? Only recently President Erdogan dismissed the head of the central bank, because he did not want to lower interest rates.

USD vs Lira since Wednesday
Building of the NY Fed. Photo: Beyond My Ken CC BY-SA 4.0

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