Why the sudden rise in exchange rates?

It’s wasn’t normal for rates to fall in the first place. We’ve witnessed a sudden buzz in social media on Sunday night when USD/TRY hits a level of 5.11. But, apparently there was something weird as Euro/TRY was remaining stable.

Social media users got excited once again when exchange rates started to climb up slowly yesterday morning, but it was not even remotely close to what happened on Sunday night. So, it looks like exchange rates decline is far bigger deal than its ascent. To tell you the truth, there are fewer reasons for exchange rates to go down in current circumstances. Let’s take a look the key “non-economic” reasons for exchange rates rise.

First of all, it can be seen that energy discoveries in the Eastern Mediterranean keep causing further conflict. Turkish naval forces may take actions that go beyond the reflex that protect and watch for those who search for energy resources on behalf of Turkey.

As you may remember, in my previous reports, I’ve told you about Greece’s attempts to hinder Turkey’s energy search. But, Ankara maintains a firm stance about this quarrel. Surely, the Turkish Government won’t allow this thing turn into a “fait accompli”, ordering our cruisers to stand guard on these waters. Apparently, we should expect a “scheduled manoeuvre” in March.

“Is foreign policy the only problem?”

In the meantime, the operation that has been launched after an attack on a Turkish military base in Duhok province of northern Iraq continues at full force. It is reported that there was a swift intervention to the region minutes after the attack, resulting in bringing the area under control by Turkish jets. These two very recent developments as well as possible future attacks are causing tensions to further escalate in the region.

This week, the Fed is expected to announce its policy interest rates, which, according to most experts, will remain almost unchanged. Many people were declaring since last December that the Fed would hike rates once or twice in 2019. Meanwhile, ECB President Draghi’s depressing statements have marked the global economic agenda as well. Current exchange rate EUR) to USD is expected to remain in a bandwidth of 1.11-1.15 no matter how demoralizing the news can be. Given that financial markets seem so tense nowadays, we should think about where current foreign policy is the only problem?

Of course not: Some International Financial Institutions begin to declare their expectations for CBRT to soon loosen monetary policy, adding that those who short sold in USD/TRY have already closed their positions, thus causing tensions in exchange rate markets to suddenly escalate.

This was the expected result of ongoing conflicts in Syria and the Eastern Mediterranean, and on the other hand, expectations for a loose monetary policy.

As I’ve always said, in Turkey, the likelihood of exchange rates may go up is always greater than a possible fall. So, I suggest all of you to consider well the circumstances before taking any action.