The main theme in the global markets these days is the dollar’s ongoing weakness; a trend which has accelerated in the recent period
In spite of completely non-hawkish statements coming from the European and Japanese central banks, financial markets continue to prefer selling dollars; a situation for which the most important factor seem to be the belief that the US Federal Reserve is less likely to increase the rate due to poor macroeconomic data and the political crisis in the US. In this situation the dollar index has fallen to 93.9, its lowest in 13 months; while strong economic data from the Eurozone and the understanding that the European Central Bank will likely ease its bond purchase programme have supported the euro. The euro/dollar rate has nearly reached the highest level it has seen in the past two years. The euro/dollar rate reached 1.1661 in late July, reaching its highest level since 1.711 on Aug. 24, 2015.
We buy in dollars, sell in euro
Although political tension with Germany, Turkey’s largest economic market, has caused some unease in Turkish financial markets, the rate of the dollar against the lira remained between 3.53 – 3.55. In short, as the dollar slides in international markets, the euro is getting stronger. But what does this entail in Turkey’s case? Experts say that euro rising reflects positively on the Turkish economy, as the fluctuations in the two currencies tend to affect the local economy in completely different ways. Turkish import transactions are mostly conducted in dollars, while the country’s exports are sold in return for euro. As Turkey’s purchases from abroad are in dollars and its sales are in euro, the situation creates an advantage for Turkey in terms of its foreign debt.
Likely to lower long-term debt
Experts note that Turkey’s foreign borrowing is mostly in dollars; which naturally means that this debt is also paid back in dollars. In other words, the slide of the dollar has an effect that reduces debt in the short term.A s such, the current conditions have had an indirect positive impact on Turkey, experts note. This is mainly because at times of the dollar gaining steam, this is usually accompanied with a shrinkage in the risk appetite of investors towards emerging markets; which affects Turkey significantly, as the country relies on foreign resources to maintain its economy. But in periods where the euro rises, the risk appetite and the flow of capital also tend to increase; which most certainly works to Turkey’s benefit.
