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Pound to lira forecast: TRY not out of the woods just yet

By Capital.com News

Edited by Vanessa Kintu


Updated

GBP/TRY
Pound to lira forecast: TRY not out of the woods just yet – Photo: Shutterstock

The Turkish lira was among the weakest of currencies in the world in 2021, tumbling to repeated recorded lows. So far this year, it has performed better. But 2022 has just started, and the lira’s woes are unlikely to fade fast.

There are no prizes for guessing what triggered the big moves in the lira last year; it was a mixture of very high inflation and Turkish President Recep Tayyip Erdoğan’s questionable understanding of monetary policy. Erdoğan was convinced the fight against surging inflation could be won with interest rate cuts, not hikes. Governors and policymakers of the Central Bank of the Republic of Turkey (CBRT) who were proponents of higher interest rates were replaced one after another. The Turkish president is the de-facto governor of the CBRT. The central bank slashed rates to 14% from 19% since September.

The embattled lira did rebound late in December as the government announced ambitious measures to halt the currency’s slide. Among those measures was the introduction of a programme to protect savings from the lira’s wild fluctuations. Specifically, the government said it was willing to make up for losses incurred by holders of lira deposits if its declines against other major currencies exceed interest rates promised by banks.

Still, the year-end rally was nowhere near enough to recoup the lira’s losses. The USD/TRY ended the year almost 80% higher; the EUR/TRY gained 66% and GBP/TRY added 75% on the year.

GBP/TRY 5-year price chart

Meanwhile, the British pound had mixed trade in 2021 as, like almost all other major currencies, it declined against the US dollar. Sterling’s performance was much better against the likes of the euro and yen, and other lower-yielding currencies or those that carried too much risk, such as the Turkish lira. Some of Sterling’s lacklustre performance was due to the “unreliable boyfriend” Bank of England (BoE). Despite rising inflation, the UK central bank twice delayed a rate increase as it feared Covid-19-related restrictions would weigh on the economic recovery and bring inflation down.

They didn’t. UK inflation rose to 5.4% in the 12 months to December, up from 5.1% in November and the highest consumer price index (CPI) print since 1992.  If you think that was bad, then spare a thought for Turkish consumers. In Turkey, consumer prices rose more than 36% in December as the cost of transport, food and other staples surged.

GB/TRY analysis: what does the chart say?

Sterling to lira predictions can be very difficult without the help of technical analysis. The first thing we notice following that big sell-off in the final week before Christmas, is that the GBP/TRY is no longer severely ‘overbought’ on the weekly and daily (and lower) time frames. The relative strength index (RSI) had remained above the threshold of 70.0 since early October, but that sell-off caused it to crash back down. With prices no longer overbought, trend followers may target the GBP/TRY once again when prices stabilise as concerns about the health of the Turkish economy have not gone away.

GBP/TRY technical analysis chart

Indeed, the longer-term technical outlook remains bullish. The GBP/TRY remains above the 50-day simple moving average (SMA). The 50-day SMA in turn is residing comfortably above the 200-day SMA, as it has done so since crossing above it in November 2019. Both of these averages have positive slopes, and while they remain in their current order, the technical outlook remains objectively bullish.

Short-term support could be provided by the 50-day average, around 17.27. Below this lies 15.00, which is a round and psychologically-important figure. If these lines of defence eventually give way, then there are not many other technically-important levels until 13.66, the low from December, which happens to come in just ahead of the long-term 200-day average. 

USD/JPY

156.81 Price
-0.550% 1D Chg, %
Long position overnight fee 0.0117%
Short position overnight fee -0.0199%
Overnight fee time 21:00 (UTC)
Spread 0.030

AUD/USD

0.66 Price
+0.310% 1D Chg, %
Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00030

AUD/USD_zero

0.66 Price
+0.310% 1D Chg, %
Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00030

GBP/USD

1.27 Price
+0.220% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00050

Resistance is currently provided by 18.50 to 18.90, with prices having failed to break above this zone following the kick-back recovery that started in late December. A potential move above this area could ignite fresh momentum buying. The high from 2021 comes in at 24.18, which is just shy of the next big psychological level of 25.00. Ahead of these targets, the 61.8% and 78.6% Fibonacci retracement levels, at 20.15 and 21.92 respectively, are additional ‘invisible’ resistance levels to monitor. 

GBP/TRY forecast 2022

One big factor behind the lira’s decline has been very high levels of growth-choking inflation. This will likely remain a dominant theme for months to come. Inflation has been surging across the world on the back of supply bottlenecks, an energy crunch in Europe, and surging commodities prices and shipping rates. Turkey’s inflation woes have been exacerbated by the vicious falls in the exchange rate, making imports significantly more expensive and pushing up the domestic prices of goods. Of course, the persistence of a questionable policy response from the Erdoğan-controlled-CBRT is unlikely to offer much for the beleaguered currency. The GBP/TRY forecast remains murky, at best.

At the start of 2022, the GBP/TRY has been relatively stable like all the other TRY pairs. Some investors are no doubt waiting to see if Turkey’s efforts to stabilise the currency is going to work.

The GBP on the other hand has enjoyed a positive start to the year. Thanks to the fastest pace of inflation since 1992, investors have boosted their expectations about a more aggressive policy tightening from the BoE. What’s more, the UK government has relaxed Covid restrictions, raising hopes the economy could rebound in the coming months.

As we head deeper in the first quarter of 2022, the direction of the GBP/TRY will depend on the direction of inflation and Covid. As things stand, the BoE is likely to lift interest rates again in February or March, while the CBRT is likely to be pressured into further loosening its monetary policy. This is likely to keep the GBP/TRY’s downside limited.

Indeed, Ken Odeluga, head of research at CF Benchmarks, said:

“You might think from Thursday’s [20 January] decision by the (not particularly apolitical) central bank to essentially pause the easing path that CBRT has been on recently, that the penny has finally dropped about the merits of the policy. Unfortunately… there’s strong enough evidence [to suggest] that the central bank can’t be relied upon to demonstrate its independence from the Recep Tayp Erdoğan regime. Most tellingly, the CBRT’s post-policy announcement statement studiously avoided any mention of its December pledge to avoid further rate cuts in Q1 2022. I think it’s really just a matter of time before the next cut – and a matter of relatively short time at that.
On the other side of the equation, surging inflation in the UK means the BoE is going to tighten monetary policy aggressively, which should keep the pound supported on dips.”

Fawad Razaqzada of TradingCandles.com added:

“There are a few things to take into account as we head deeper into 2022 for the lira. Inflation needs to come back down to single figures to give investors the confidence that the government’s policies are working. But with Brent oil prices around $85 a barrel, inflation is not going to come down fast. So, for as long as inflation remains hot, the woes for the lira will not go away.  On top of this, investors are well aware by now that foreign reserves of Turkey have been depleted, making it increasingly difficult for further government intervention. This increases the prospects of further speculative attacks on the currency, particularly in the first of the year.
The only hope for the lira is the potential for a strong global recovery and an end to the pandemic. If we transition into an endemic and costly Covid tests and self-isolation are behind us, and confidence returns, then this would likely boost foreign demand for Turkish holidays. This could boost demand for the lira in the summer months. There are still several months to go until then, which means demand from this source is unlikely to save the lira just yet.

All told, the lira’s recent strength is probably nothing more than just a pause in a long-term downward cycle.”

Certainly, tourism in Turkey has been booming in recent years, with the country becoming one of the world’s top ten destinations. Other key sectors of Turkey’s economy include agriculture, construction, electronics, textiles and banking.

Note that analysts forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQ

Is GBP strong against TRY?

The British pound is among one of the strongest currencies in the world, especially against the Turkish lira after the latter’s collapse in 2021 and weakness in the previous years. That’s not to say 2022 would be another good year for the GBP/TRY, as the past is not necessarily a good indicator of the future.

What is the best time to trade GBP/TRY?

The best time to trade the GBP/TRY is when both the London and Istanbul financial markets are open. In other words, from around 07:00 GMT to 15:00 GMT. Most news concerning both regions tends to come out around this time period. Trading volumes tend to be very thin outside of these hours.

Markets in this article

EUR/TRY
EUR/TRY
35.14094 USD
0.05687 +0.160%
GBP/TRY
GBP/TRY
41.24415 USD
0.08857 +0.220%
USD/TRY
USD/TRY
32.35240 USD
-0.02687 -0.080%

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