After U.S. dollar–TL parity reached a record high of 3.3165 with strong expectations that the U.S. Federal Reserve (Fed) would increase interest rates in December, it finally stabilized at 3.30. The U.S dollar, which reached a record level of 3.3041 due to a decrease in risk appetite and uncertainty in global markets following Republican Donald Trump's victory in the U.S. presidential elections, traded above TL 3.20 during the week.
While the dollar has continued gaining value against the currencies of developing countries and many developed countries, U.S. 10-year bond rates and the dollar index accelerated upwards. This was due to expectations that Trump will take extensive steps in fiscal policy to increase inflation and that the Fed will rapidly increase interest rates.
In the aftermath of the presidential elections, U.S. 10-year bond rates increased by 50 basis points, seeing the highest level of the year at 2.30, while the dollar index reached 100.32, the highest level in the past 11 months. On a weekly basis, the Brazilian real dropped in value by 7 percent against the dollar's rise, followed by the South African rand by 5.7 percent, Japanese yen by 3.4 percent, Mexican peso by 2.7 percent and Russian ruble by 2.5 percent.
Dollar–TL parity, which started trading at just below 3.29 on Wednesday, climbed in parallel with the devaluation of the currencies of developing countries due to the global market's expectation that the Fed will increase interest rates in December. Climbing to its new record high of 3.3165, U.S. dollar–TL parity is being traded at 3.3092 as of 12:45 p.m. with euro–TL parity at 3.5485 (a 0.6 percent increase) and pound–TL parity at 4.1265 (a 0.7 percent increase.)
The rate has been steadily increasing since mid-August, starting its rally near the 2.93 level. U.S. based investment bank Morgan Stanley predicted Tuesday that the parity rate could easily surpass 3.40 mark if foreign currency deposits reach pre-coup attempt levels and dollarization increases.
Meanwhile on Tuesday, Economy Minister Nihat Zeybekci said that the government will not intervene on the rise of the parity rate.
Destek Yatırım Securities Research Vice President Adnan Çekçen said even though markets in developing countries were feeling a little respite yesterday, they have started to price the Fed concern again today. Noting that the dollar–TL movement is not caused solely by the fragility of TL assets but also by the pressure on the currencies of all developing countries, Çekçen said U.S. data has met expectations since the last trading day of last week.
Stating that the U.S. industrial production and Producer Price Index (PPI) announced on Wednesday are expected to have a positive effect, Çekcen recalled that Boston Fed Chair Eric Rosengren said on Tuesday that the Fed would definitely increase interest rates in December. "Sales waves in the global bond markets still continue. The drastic upsurge in the U.S. 10-year bond rates is reminiscent of the bond movement in May 2013 when the Fed announced for the first time that it would terminate the asset purchase program, and since that day the volatility in the market has continued," he said.
Çekcen stressed that there has been a technical breakdown in U.S. dollar–TL parity with it exceeding 3.30, and if it persists at this level, the first target is likely to be 3.33. Pointing out that 3.2830-3.3000 could be the zone of the new movement, Çekçen said if these levels are permanent, the upward trends might continue.