beginning of May the U.S. Dollar vs the Turkish Lira chart could be compared to
a space rocket, shooting off into the sky. This week the Greenback is up from 16.26 to
17.20 Turkish Lira, or by 3% over three days. This amounts to 600% of annual
yield. It seems that after a slow start, the “rocket” went shot far out into
Lira is primary suffering from the Turkish Central Bank’s unusual monetary
policy directed by the President of Turkey Recep Erdogan.
two major abilities. One is that it is traditionally considered to be a safe
haven asset that is in high demand during times of elevated risks in the
market, rising inflation, and geopolitical uncertainties. The second is that it
acts as an anti-dollar indication because gold prices mostly move in the
opposite direction to the Dollar. The Dollar itself has become a safe haven
asset in recent months as the Federal Reserve (Fed) has risen interest rates along
with Treasuries yields. So, gold prices are now more correlated with the
irrational market life sometimes breaks traditional molds. Countries with
positive trade balance were seeking for a weaker national currency to benefit
their exports. Weak Euro, Swiss Franc, British Pound and similar currencies are
dependent on their exports. Thus, weaker nation currency support exports and
increase budget revenues. Thus, a giveaway game continued for decades. Whoever
has a weaker currency seems to be the champion.
pandemic and Russian warfare in Ukraine became a game changing environment in
Pound suffered over the last month when it plunged 7% from 1.3112 below the
1.2200 level. However, the Greenback is responsible for most of this dive. It has
been heavily rising across the market since the Federal Reserve (Fed) began to
tighten its monetary policy and increasing interest rates. Geopolitical, inflationary, and stagflation risks usually draw
investors towards the safe haven U.S. Dollar.
Dollar index (DXY) that measures the currency basket of the Dollar against six
major currencies, rose from 99.8 points to 104.
some correction of the U.S. Dollar index from 101 to 100 points, more factors seem
to be pointing towards the further strengthening of the Greenback rather than
for its decline, and the recent drop may be rather distinguished as a
correction to the upward trend.
for a steeper angle of interest rate hikes by the Federal Reserve (Fed).
Investors are considering the 96% probability of a 50 basic point interest rate
hike from 0.5% to 1.0% to be announced the May 5 meeting.
meeting on Thursday the European Central Bank (ECB) trumpeted a more hawkish tune when revealing
its monetary policy perspectives. The ECB plans to reduce its bond-buying
program under APP to 30 billion Euros in May and to 20 billion Euros in June
from the current 40 billion Euros a month. The program itself is planned to be
terminated somewhere during Q3 2022.
declaring this the ECB has joined the approach of other major central banks
that have already lifted interest rates, but without actually doing so.
released March economic data for the Eurozone highlights elevating economic
troubles and investors’ pessimism. The Business and Consumer Survey, which
measures the level of confidence in the Eurozone, fell to 108.5 points from the
previously 113.9 points. The survey also showed that Business Climate, that provides
a general look at business health for a period, fell to 1.67 from 1.79 and the
Industrial Sentiment dipped to 10.4 from 14.1.
and the decision of the U.S. Federal Reserve (Fed) to hike interest rates by a quarter
percentage point for the first time since 2018 on Wednesday certainly affected the
monetary policies of other central bankers, including the Bank of England (BoE). British monetary policymakers raised the base
rate for a third time over a period of months, to 0.75% from 0.5%.
After this decision the
Pound fell to the U.S. Dollar from 1.3200 to 1.3100 and at first sight this may
seem to be paradoxical or controversial after such a rise. But there is solid
logic behind it.
In order to
understand the movement of EURUSD it is important to look at the inflation
rates in both the United States and in Europe. The Consumer price index (CPI) data
released for the Eurozone on Thursday also provides important economic input for
the movement of the currency pair to be explained.
The CPI for
Europe rose moderately in December to 5.0% year-on-year from 4.9% in November
compared to 7% in the United States for the same period. These figures show
that the pace at which prices rose in Europe was not so steep as in the U.S.
Dollar has been vulnerable to investors’ mood swings over the last few days.
The U.S. Dollar index (DXY) was breaking the limits in the beginning of the
week, but lost ground at 96.7 points as omicron-variant risks appeared to be milder
than previously expected.
The DXY index
fell to 96 points on Thursday despite positive developments in the U.S. economy
that grew by 2.3% year-on-year in Q3 2021 vs the expected 2.1%. Consumer
confidence in December rose to 115.8 points vs the expected 110.8 points and
the previous 111.9 points.