- BoE sees UK inflation falling back to 2% and below in the FY 2023 from the current 2.5%.
- July 2021 saw UK house prices surge 7.6% (YoY) from June 2020.
- Turkey raised its CPI forecast for the end of 2021 to 16.30% as the President calls for lower interest rates.
The GBPTRY grew 0.69% as of 6:10 am GMT on August 6, 2021, from the previous day’s close. It hit a low of 11.8659 and reached a high of 12.0041, representing a total price change of 1.16%.
BoE policy statement
The market reacted positively to the Bank of England (BoE’s) policy statement, expressing optimism that the inflation rise above the Bank’s target was temporary.
Figure 1- BoE expects the inflation rate to fall towards the 2%
From the current rate of 2.5%, the BoE sees inflation falling back to 2% and below in FY 2023. The rise in demand that has caused this surge was a reciprocal event that occurred after multiple countries relaxed Covid-19 related restrictions.
With the BoE focused on supporting households and offering financial help to businesses, it is expected that it will work to lower the rate. Additionally, at 0.10%, the bank rate is seen as adequately low to offer affordable loans to British households and support businesses. The next bank rate review is expected on September 23, 2021, with investors hopeful that the BoE will consider tapering and lower quantitative easing at £895 billion.
The BoE reiterated the importance of vaccines in improving the spending culture, adding jobs, and increasing income levels among citizens.
A total of 85,801,167 doses have been issued in the UK with up to 38,874,837 people fully vaccinated. On August 4, 2021, the UK government confirmed that the Pfizer/ BioNTech vaccine had an efficacy rate of 96% against hospitalization by the Delta variant. On its part, the Oxford/ AstraZeneca dose had an efficacy rate of 92% against the infectious variant.
Figure 2- One-month analysis of UK Covid-19 cases
In the 1-month analysis, new coronavirus cases have declined from highs of 46,000 in mid-July 2021 to 29,825 on August 5, 2021. The 7-day average has also declined 44.34% from 46.878 to 25,860, indicating successful combat against the spread of the virus.
July 2021 saw house prices surge 7.6% (YoY) from June 2020. The average price stood at £261,221, with a monthly change at +-0.4% and a quarterly change (Q2 2021) at +2.4%. There is still strong demand for houses despite falling sale instructions to estate agents.
Turkey raised its CPI forecast for the end of 2021 to 16.30% from 15.64%. President Erdogan added to the lira’s fragility by calling for further reduction of interest rates.
Figure 3- 5-year analysis of Turkish interest rates
In its July meeting, the Central Bank of Turkey maintained the repo (interest) rates at 19%, with investors maintaining negative sentiment over the lira. In the last year, the lira has lost 21.14% against the US dollar and 28.6% against the British pound. Traders are of the view that the USDTRY pair will reach 9.5000 before the end of 2021, surpassing the 52-week high of 8.8061.
Turkey has also come under fire over its response to recent wildfires that hampered the tourism economy.
The GBPTRY pair is expected to stay above 11.5118. At the same time, the recent upswing has been supported by a rise in the 14-day RSI at 56.13.
The pair found support at 9.6074 and rose to meet resistance at 12.4289. Currently, more buyers are entering the market, pushing prices higher.