My prediction in a report I wrote a month ago is becoming a fact. There is this trend that is spreading globally among the world’s governments:
“Our priority is inflation; we’ll deal with growth later…”
I said a while ago that governments would come to a crossroads where they will either stop trying to achieve higher growth rates or abandon their fight against high inflation. Developed economies seem to have made their choices.
The members of the European Central Bank seem like they have warmed up to the idea of taking interest rates above zero due to European countries’ dramatically increasing concerns about inflation. It is reported that the ECB officials are considering a 25-basis point rate hike in July, and at least two further moves of that size before the end of the year.
Christine Lagarde had confirmed that the ECB would conclude its asset purchase programme in the third quarter of this year and the rate hikes would begin soon after that. Apparently, what is meant by third quarter is July 2022. Thus, the interest rate hike, which is expected to happen in 2023, has been moved to an earlier date by the ECB policy makers.
“Better Keep a Close Watch on Currency Basket”
Despite the ECB’s efforts, the Euro/Dollar parity is still weak. The duo currently remains at lower levels when compared to its performance in 2017. As more and more people are saying that the parity will try 1.00, we notice that this situation offers a great opportunity to those who have Euro-denominated liabilities. The costs in many sectors of Turkish Industry are still in dollars. Only in the technology products and services sector, firms do prefer euro pricing. The euro’s recent movements against dollar provided a situation where both individuals and companies could hedge themselves against Euro-denominated inputs.
The best precaution that investors can take is to closely follow the currency basket. If the currency basket is lower than the previous day, taking advantage of the decline in the parity may be a smart move. It would also be a wise to take action when both the parity and the Dollar/TRY tend to go down, compared to the previous day. Since all the available parameters show that the exchange rates will eventually increase again, you should focus on not to miss the opportunities.
What’s going on in the markets right now is a clear proof of the accuracy of my previous projections.