Will the Euro Fall? Navigating Currency Fluctuations in Uncertain Times

The question hangs in the air, echoing through various circles, from construction sites to those burdened with foreign currency debt. It’s a question driven by both hope and anxiety: “Will the euro fall?”. And it’s invariably accompanied by its twin: “Will foreign currencies rise even further?”. The latter is surely next in line as a pressing concern.

Recently, a lighthearted remark on this very situation drew criticism on social media. The essence of the complaint was: “Brother, you’re the expert, who else are we supposed to ask?”. While the sentiment is understandable, what’s truly striking is the consistency. The same questions arise whether currencies are climbing or declining. Some messages, particularly on social media, are so bewildering it’s hard to know where to begin addressing them.

Consider this example:

“Professor Emre, I sold the Euros entrusted to me when they reached 5.00 TL, thinking I’d profit, but they keep climbing. Is there any chance they might fall?”

It’s difficult to know where to even start with such a question. How does one explain to someone that leveraging entrusted foreign currency for personal gain through buying and selling is ethically questionable?

Let’s examine another query:

“When exchange rates remained stable for a while in February, I took out a Euro loan due to lower interest rates. However, it has risen rapidly, and I have no foreign currency income. What should I do now?”

“Clearly, there’s a memory issue here…”

This question itself is rife with paradoxes. From a fundamental perspective, borrowing in a foreign currency without foreign currency income is inherently imprudent. But let’s set that aside. Looking back at February of this year, it’s clear that the Euro/TL exchange rate was far from stable for an extended period. The person sending this message seems to have overlooked the Euro/TL’s surge from 3.20 to 4.70 between February 2016 and February 2018. That’s a significant 46% increase. Evidently, a brief period of calm in the Euro/TL rate emboldened them to think, “Surely, it won’t rise much further.” History is littered with companies that have collapsed due to such “surely” assumptions.

It bears repeating: When the underlying reasons for a national currency’s depreciation are evident – factors like a company’s foreign currency debt, the composition of imports, low added-value exports, high inflation, education levels, constantly changing laws, a perpetual election atmosphere, and diplomatic tensions – asking “will currencies fall or rise?” becomes a futile exercise in empty chatter. No offense intended. Those genuinely curious would be better served asking market professionals “how far might it fall, how high might it climb?”. Though, realistically, they’re likely to keep accurate insights to themselves. Asking, however, doesn’t hurt.

Here’s a sliver of insight: If market movements defy logic, consider doing the opposite if you have the nerve. If not, steer clear altogether. I was highlighting the general trend even when the Dollar/TL was at 2.00. There’s a genuine issue of collective amnesia in Turkey. If we aim to move forward without constantly facing these issues, Turkey must truly become an “export-oriented nation.” In fact, we should broaden the definition of “activities that generate foreign currency” and strive to bring substantial foreign currency into the country. Achieving this would genuinely improve the investment climate. Only then can we move beyond obsessing over exchange rates and interest rates as our primary concerns.