Pound euro exchange rate: Turkey lira meltdown helps GBP edge away from worst rates

Following a week which saw pound hit its lowest rate against the euro since September 2017, Sterling has managed to halt its recent downtrend.

While the pound derived little support from last Friday’s UK growth data, the escalating financial crisis in Turkey has proved negative to the euro.

This is due to the European Central Bank (ECB) expressing concerns that Turkey’s dilemma might have knock-on effects in the Eurozone.

These fears were sparked in light of the fact that European banks such as BBVA, UniCredit and BNP have ties to Turkey.

The Turkish lira plummeted by 19 per cent last week as the US piled tariffs onto Turkey amid a widening rift between the two nations. The lira has since extended that decline to 25 per cent.

Looking ahead, pound investors are no doubt hopeful of a quieter week on the Brexit front, with the UK’s latest inflation figures due for release on Wednesday.

A forecast uptick in the inflation rate may give Sterling a little positive traction in the markets, but a decline in the figure may cause Sterling to fall to new lows.

According to the monthly Lloyds Bank International Finance Report, there is very low likelihood of a no-deal Brexit.

This is despite the pessimistic statements by Bank of England (BoE) Governor Mark Carney and International Trade Secretary Liam Fox.

The report from Lloyds predicted that Sterling would see a sizeable lift over the remainder of the year as Brexit tensions ease, but whether this prediction is accurate or not remains to be seen.

On the other side of the pairing, the euro may weaken tomorrow with analysts forecasting that the Eurozone’s latest GDP figures will fail to impress.

Quarterly growth is expected to slip to 0.3 per cent, down from 0.4 per cent in the first quarter, while yearly growth is forecast to drop to 2.1 per cent after previous indications of 2.5 per cent.

Of course, euro exchange rates may also be hurt further if the situation in Turkey fails to turn around.

Calls on Turkey’s President Recep Tayyip Erdogan to “save the Turkish lira” abound, but Mr Erdogan has as yet not indicated that he intends to make bold changes to the structure of the Turkish economy.