Dollar Gains Value Everywhere, But Turkey

Although these measures create inflationist pressure and increase the foreign trade deficit, it also makes Dollar a more attractive financial tool for investors.

The Dollar after falling to its lowest level in the history began to recover in its three month performance against the Euro. The US Federal Reserve (FED) increased interest rates, held low at one percent for a long time, to 2.5 percent, with six quarter point increases since June 2004. For the solid purchases on the Dollar, interest rates will be expected to be up around four percent mid term.

The Dollar reached its highest level against the Euro on 31 December 2004 at 1,3667. A softening on parity began in the aftermath. The parity reducing to 1,3165 with the publication of FED’s interest increase in the first week of the January, falling to 1,3050 after a quarter point interest increase that occurred just a week later. Pro-dollar effect began following the announcement by the European Central Bank that they would keep the Euro interest rates at two percent. Whereas the expectation of a drop on oil prices would decrease the US current deficit strengthening the Dollar, FED President Alan Greenspan’s speech made at the G-7 meetings in London putting forward his theory about the closure of the deficit with a tight fiscal policy increased the Dollar to 1,2850. China’s announcement regarding its determination on implementing a floating exchange rate, adding that this would take a long time, paved the way for a Dollar increase to 1,2730 at the G-7 summit. The Bush administration’s budget transfer gave signs of closing the deficit with budget cut backs accepted by the House of Representatives is accepted and has signaled a value increase in the Dollar.

When foreign funds flow into Turkey, the YTL gains value against Dollar While the Dollar gained strength on international exchange markets, it lost value against the New Turkish Lira (YTL). The Dollar’s performance against the Euro shown at the beginning of January reflected its parity with YTL and increased to 1.4 on January 7; however, in the aftermath of this level, YTL began to gain value and increased to 1,3090. It seems that neither the message of Greenspan nor the positive developments on the current and budget deficits have influenced YTL.