I’m turning 50 today. When I look back at the past, I now realize that the question is undisputedly the most ridiculous question I’ve ever heard in my life. There’s also this: “How much higher can exchange rates go?” Why am I saying that it’s ridiculous? Here’s why.
Because, people who usually ask this question to me happen to be those who think they can buy foreign currency when the rate is low and sell it when the rate tends to increase. That’s not the way how things work. One would think that they are getting expert advice given they will buy foreign currency. If they make profit, it would be because they’re very smart, but if they lose, they’ll day that somebody else’s making. They do not think, for one second, about their actions and their consequences because they figure that it exhausting.
Now, I’ll explain once again the reason why exchange rates are falling: The G-20 summit, which was anticipated to be overshadowed by political tensions, turned out to be very calm and constructive indeed. We witnessed some sort of “commercial ceasefire” between the US and China. Luckily, tensions between Turkish and the US Administrations, on the other hand, didn’t escalate any further.
Although Trump said that all existing issues with Turkey are closely associated with the mistakes that have been made during Obama’s presidency, he did not forget to warn Turkey about the S-400 deal either. US President is expected to visit Turkey in July but if Russia completes S-400 deliveries to Turkey within the next two weeks, Trump might just delay this visit. Even the possibility of such visit, by the way, was enough make the markets move.
When President Erdoğan said, “The US Administration will not impose sanctions on Turkey”, markets could finally breathe a sigh of relief. On the hand, according to a White House statement, Trump did express his concerns about the S-400 deal. Apparently, both parties made their own interpretations of Trump’s remarks. Seeing Trump and his team’s friendly attitude, Turkish delegation seems to have assumed that the US will quite probably cancel sanctions. The US delegation, on the other hand, delivered the following message to the hawks in Washington: “Don’t you worry! We are closely monitoring the issue here”. Regardless, it seems like tensions between the US and Turkey has been defused.
“Another direction, another trend…”
All of this reminded me of a certain reality: The direction of exchange rates is set by the politics, the trend, on the other hand, is set by economic circumstances.
So, the trend might point downward for the moment. Although a lot of people say that the government won’t let USD/TRY fall any further, let’s be reminded that markets always offer opportunities. This is a great opportunity especially for those who owe debt in foreign currency. However, I do not think that this trend will last too long.
Now as the G-20 Summit has ended, which has been quite stressful for Ankara, it can be seen that people still wonder about the possible side effects of Istanbul mayoral re-run. Although political parties say that a snap election does not currently make part of their agendas, I believe they will start discussing a possible snap election sooner rather than later. Anything that would accelerate this discussion would be the formation of a new party appealing to both Center-Right and Center-Left.
This new party will have to appeal to all groups in society just like AK Party did during its formation process. Otherwise, their voting groups will become even more marginalized against the increasing demand of “centrism”.
As I have mentioned above, Exchange Rates will start to fluctuate again once the calmness in domestic and foreign politics is over. Turkish economy, by the way, still maintains its fragile trend.
I strongly suggest everyone to listen to my advice and take measures accordingly.