The head-spinning movements we have seen in the markets since January are making us question the future of foreign exchange markets. As we head toward the end of the year, the dollar has surged, coming closer to testing the TL 3.90 level after surpassing TL 3.80.

Especially during the months of September and October, the Turkish central bank's announcement of liquidity-related measures did not manage to brake fluctuating rates. Following the rapid meltdown of the Turkish lira, the central bank gave a message that they are watching the developments closely and will take the necessary precautions, but expectations of a crisis in the bond market in the U.S. and cyclical risks continue to up the pressure on the exchange rate.

Especially after the rapid rise in exchange rates, markets will be closely watching what kind of move the central bank makes in the interest rate meeting scheduled for November. Another question is the fact that markets are worried that the central bank may not be comfortable with an interest rate hike. In particular, the pressure on the FX purchases of companies that have been in need of liquidity lately and uncertainty in the global market are important issues that may cause the central bank to refrain from using its interest weapon for now.

Expectations that the U.S. Federal Reserve (Fed) will increase interest rates faster at the end of the year also exerts more pressure on developing countries. Although the impact is not felt strongly in other developing countries, it is thought that the reason behind the depreciation in local currencies of countries such as Mexico, Poland and Turkey is possibly these expectations.

In particular, the Turkish economy, which grew in the 6 percent band in the last two quarters, differs from other countries in a positive way in terms of dependence on exchange rates.

Although the Turkish economy is in a more susceptible position when it comes to foreign exchange-based loans in comparison to other emerging economies, it does not see the exchange rate increase as a major risk, especially due to its diversified export items, tourism revenues and high domestic consumption. Especially the stock market, which has made investors happy recently, and banks' profitability, has led rating agencies and the World Bank to revise their growth figures for Turkey for 2018 for the better. The absence of a critical situation affecting Turkish bonds traded globally and risk premiums in those countries may help markets remain calm until the end of the year. It seems likely that this rise in dollar exchange rates may be a result of speculative and international foreign currency exchange movements.

Political and geopolitical factors as well as the terrorism factor seen in its southern neighbors, which constitute the national and international agenda for Ankara, are also a part of this price perception. Performance sectors such as textiles and mining, which run on foreign financing, will show by the end of the year to be key factors that determine the central bank's 2018 strategy. The U.S. Treasury's plan to increase economic growth through capital markets has also played an important role in causing more uncertainty. Having companies' supply to the public, access to capital and regulations to increase financial instruments included in the report may cause the U.S. domestic market's dollar needs to increase, especially in December. This seems to be among other developments that are causing an increase in the appetite for the currency to return to its mainland.

* Ph.D. researcher in Private Company Economic Research Department MENA at Swiss Business School