Dollar will rise no matter what the Fed does…

Amidst Idlib matter and the Coronavirus outbreak, we are going through some hard times where we cannot event find the chance to keep ourselves up to date with the recent developments in international markets. Some of these developments however must be tackled very carefully.

As you may remember, I have said in my previous articles that the Fed decisions to cut rates would not be able to prevent Dollar from appreciating despite Trump’s expectations. I have been telling the same thing since the middle of the last year I guess. It can be seen that the Euro/Dollar parity has fallen to 1.08 this morning which was remaining at around 1.14 last June.

This situation will obviously cause the dollar denominated value of 50% of Turkish exports delivered to Europe. This downward trend, which means more than 5% depreciation of Euro in just 6 to 7 months, had in fact started at a level of 1.24 in the beginning of 2018. In other words, Dollar denominated value of good that have been sold in Euro denomination 2 years ago was 15% higher compared to today.

“Turkish Central Bank should focus on the latest developments in global financial markets as well…”

The US economy stands out as the only largest and strongest economy of the world today as China’s economy is slowing down and EU economy is getting weaker. Considering all of this, there’s no particular reason for the dollar to lose its value. Besides, now everyone is selling their dollars as risk appetite keeps increasing, and then they buy dollars again when the risk appetite tends to go down. Therefore, it’s only natural for the US Dollar to gain value in an environment where investors are less willing to tie up money for a long time in the midst of this virus outbreak.

In short, Dollar’s future will not change no matter what the Fed decides to do. The value of the Dollar will keep rising. But the fact that the Fed is expanding its balance sheet has a direct impact on Turkey. Interestingly, the lean offering festival by the banks in Turkey and Fed’s balance sheet expansion are taking place simultaneously. Well, it’s been the case since almost for the last 5 years.

In conclusion, I expect CBRT will make its move in such a manner so as not to cause exchange rates to go off the rails. As the dollar keeps appreciating all around the world, we should bear in mind that USD/TRY might move a lot faster than expected.