Everyone is asking why the euro has been going up against US dollar. Before answering this question, it is necessary to analyse what the dollar means for investors.
Although the dollar is described as the currency of the United States of America, in practice it is not. The dollar is an internationally recognized store of value exported to the world by the US. The world values its debt, receivables, assets, losses, or wealth in dollar terms. When their risk appetite decreases, people sell their assets and returns to the dollar, for it is most liquid investment instrument. In any country in the world, you can pay with dollars, which is a widely accepted medium of exchange.
If things are going well in the world and especially in the US economy, investors tend to sell their dollars and return to other investment instruments, which leads to a rise in euro’s value against that of the dollar. As you may remember, I forecasted in my November reports that “it is possible for the duo to test 1.05 again”.
“Good For Turkish Export But…”
The Fed gave up its strict interest rate policy following the unexpectedly positive developments in the US economy. As a result, investors regained their risk appetite, and the euro began to appreciate against the dollar. If the ECB continues to raise interest rates faster than the Fed, we can expect further rise in the value of the euro.
Obviously, such a development would positively impact Turkey’s current account deficit, especially when the county is experiencing problems with its export markets. However, I don’t think it will be enough because companies exporting to Europe are faced not only with price fixing but also a decline in the number of orders. Therefore, the appreciation of the euro will serve nothing more a dressing on the wound for Turkey’s trade balance, being unable to fully protect from external risks.
I would also like to warn about the side effects of interrupting marketing activities as an attempt to reduce costs. Since most of the companies employ sufficient staff and are already faced with huge costs, trying to reduce costs without increasing revenue first could lead to undesired results, therefore, companies should be very careful when making plans for the upcoming year to avoid further harm.
