This week there has been a lot talk about different currency movements.
Firstly, the weakness of sterling against both the euro and the dollar. Last year this time GBP actually strengthened against USD and EUR but since then it has lost value and we are pretty much back where we started exactly one year ago (see chart 1 EURGBP). Why? That’s largely because people are concerned about the possibility of a No Deal Brexit.
(Reference: Tradeview)
Secondly, we’ve had a lot of talk about the extreme weakness of the Turkish Lira against all global currencies. GBP now is worth more than 50% more than it was against the Lira one year ago so that the Turkish Lira really has weakened quite considerably (see chart 2).
(Reference: Tradeview)
Why? Many investors are quite concerned about the Turkish economy – in particular the level of the debt that the country has and about the high level of imports that the country relies on. In fact, the weakening of the currency is almost a perpetually vicious circle: the country has lots of debt and a lot of that debt is denominated in foreign currency. Therefore, as the Turkish Lira weakens it’s going to cost more for Turkey to serve as its debt. Also, because the country relies so much on imports as the currency weakens that means there is imports are going to cost Turkey more now.
Normally in the situation when your currency is weakening then it’s quite usual to raise interest rates to attract more capital back to the country. However, the President of Turkey Mr. Erdogan has said he doesn’t want to do that and he’s even described himself as “enemy of interest rate” so that is causing some concern for economists.
So things don’t look too good for the Turkish economy at the moment but if you are going on holiday to Turkey you will find that things seem a lot cheaper than one year ago. Holiday company Thomas Cook has seen a 63% rise in bookings to Turkey.
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