GBP/TRY: Pound to lira outlook after Turkey hikes taxes

2023-07-07 10:30:00 ET

The Turkish lira continued slipping on Friday as the Erdogan administration boosted taxes to fund its earthquake repairs efforts. The pound to lira (

GBP/TRY

) exchange rate rose to 33.25 while the USD/TRY price jumped to 26.08.

Turkey hikes taxes

Turkey is going through major headwinds. Inflation remains at an elevated despite cooling in June. Data published this week showed that the headline inflation rate rose 3.92% MoM, better than the median estimate of 4.4%.

Inflation

rose 38.21% during the month, also lower than the previously expected 39.47%. Inflation has dropped in the past eight straight months.

However, the situation could soon change as the Turkish lira slump continues. In all, the lira has plunged by almost 40% this year, making it costly for importers. The currency resumed its freefall after Erdogan won the last general election.

Inflation could also worsen after Turkey decided to hike taxes as it looks for funds for its earthquake reconstruction efforts. It hiked the value-added tax (VAT) to 20% from the previous 18%. Also, the VAT on basic items like basic food and textiles will also rise to 10%.

While the 2% tax increase seems small, its impact on consumer spending and inflation could be dire. The tax increase is also notable since it comes a few months after Erdogan boosted public wages.

The government announced a 55% increase in wages, which could also lead to more price pressure. Civil servant wages jumped by 30%. Therefore, the outcome of all this is that the Turkish lira will likely continue to worsen in the coming months.

GBP/TRY forecast

GBP/TRY chart by TradingView

The daily chart shows that the GBP to lira exchange rate has been in a strong bullish trend in the past few months. It has jumped in the past three straight days. The pair has moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the overbought level.

Therefore, the pair will likely continue rising as buyers target the next key resistance level at 35.  A move below the key support level at 30 will invalidate the bullish view.

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GBP/TRY: Pound to lira outlook after Turkey hikes taxes

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