The GBP/TRY currency pair continued rising as investors reacted to the latest Bank of England interest rate decision and the strong Turkish inflation data. It has risen by more than 70% from its lowest level in 2022. Similarly there USD/TRY exchange rate has also jumped sharply as the Turkish lira continued to depreciate.
BOE and CBRT divergence
The GBP to try pair has been in a strong bullish trend as the divergence between the Bank of England and the Central Bank of the Republic of Turkey (CBRT) continues. On Thursday, the Bank of England decided to increase interest rates by 0.5% as it continued to fight the rising inflation rate in the country. The bank also warned that it will continue hiking interest rates in the next few months. At the same time, officials warned that the country will likely face a recession in the fourth quarter of this year.
Recent data from the UK shows that inflation jumped to 9.4%.In June while the unemployment rate dropped to the lowest level since the pandemic started. The 0.50% interest hike was the biggest since 1994.
On the other hand, the Central Bank of the Republic of Turkey has embraced an extremely bearish sentiment even as inflation rises and the Turkish lira collapses. Data published this week showed that Turkish inflation jumped to the highest level in decades. The headline inflation draws 278.6%, while the producer price index rose to over 138%.
With inflation rising the CBRT.Has maintained a dovish tone in that it has failed to hike interest rates. This decision has made it an outlier among central banks from developed and emerging markets. For example, the Brazilian and South African central banks have hiked interest rates several times this year in a bid to counter the rising inflation.
Turning to the daily chart we see that the GBP/TRY pair has been in a strong bullish trend in the past few months as the Turkish lira continued depreciating. The pair rose to 22 this week and it remains above 25 and 50-day moving averages. Also, it managed to cross the important resistance level at 21.65, which was the highest level in June this year.
Therefore, unless the CBRT makes significant changes the pair will likely continue rising as buyers target the next important resistance level at 23. On the other hand, a drop below the support at 20.18 will signify that there are still more sellers left in the market. It will then Invalidate the bullish view.