US Inflation Neutralized the ECB’s Rate Hike…

The inflation rate announced in the United States right after the European Central Bank’s rate hike caused big confusion and is visibly affecting the exchange rates.


“Exchange rate movements do not follow a specific pattern” say seasoned experts. They are not exactly wrong. Technical analyses are obviously important, but the market itself also has its own approaches.


The situation and the near future of the European economy is clear to everyone. The Euro seems to have appreciated slightly against the Dollar, thanks to the ECB, which took a series of interest-raising steps, albeit a bit late.


As a matter of fact, everyone knows how much the Fed can afford to raise interest rates. However, when the ECB’s hike was unprecedently high, the euro-dollar exchange rate has suddenly changed direction. Even if the Fed announces a 75-bps increase on 21 September, the duo may still not hit the bottom level. Of course, no one can predict exactly what will happen to European economy. All we know is that Europe will no longer offer record low interest rates.


The only thing that can strengthen the dollar again may be a higher than 75 bps increase by the Fed or further deepening of tensions between Europe and Russia. Frankly, I cannot help but get worried as I see the rise of the far right even in Sweden. Throughout the history, Europe has gone through a lot of pain and suffering because of such extreme politics. I, personally, sense that the 1930’s right-wing winds are slowly beginning to prevail in Europe again. Over the last 150 years, the right-wing extremism has been the harbinger of many troubles such as economic crises, unemployment, migration, and unemployment.


The ECB and Fed members are taking measures to keep an effective fight against inflation; however, unsuccessful leadership and inadequacies do not go unnoticed on both sides of the Atlantic. Frankly, there is a general opposition to Turkey. However, these opinions, either against or in favour of Turkey, seem to be owned by no one. In such cases, unfortunately, hostility wins out and rational thinking disappears.


“Turkey has a difficult job ahead”


It is quite difficult for Turkey to solve its problems with the West in a political-economic climate characterized by Russia’s ambition to teach Europeans an unforgettable lesson about natural gas and Europeans’ desire to get rid of Putin at all costs. Therefore, it does not seem likely for Turkey to address issues such as the Customs Union and solve them in favour of our exports. Besides, there is also a lot of propaganda material on social media that shows Turkey as pro-Russian. It looks like the politics of equilibrium are not working quite effectively in the world these days, which pressures each country to choose its side and position.


To sum up: The FX rate movements that terrifies Turkish exporters seem to have finally calmed down with the last rate hike move by the ECB. But the high US inflation is not the only issue on the eurozone’s agenda.


Given the constant fluctuations in energy, commodity, and food prices, it is quite predictable that Europe has a nightmarish winter ahead. Foreign currency earning activities have become more important than ever for Turkey now. So, it is imperative to develop an effective strategy and generate the necessary funds to manage and grow these activities for the long term.