Lira Explodes, USD Dominates the Foreign Exchange Market

We mainly viewed the change in the vector of monetary policy in the United States through the prism of the US stock market. But if someone loses, then someone should also win. And that someone is the US dollar.

In general, 2021 turned out to be successful for the American currency: the dollar strengthened against all the currencies of the G-10 countries. At the same time, in our opinion, the growth potential has not yet been fully exhausted. In the context of interest rate differentials, its further growth against the New Zealand dollar or the same pound does not look as unambiguous as, for example, against the euro or the Japanese yen.

The sale of the Turkish lira looks quite promising after its epic growth at the start of this week. Let us remind you that the economic insanity of Erdogan this year cost the lira very dearly: the currency has depreciated threefold.

The sharp rise on Monday is associated with the announcement by the President of Turkey of unprecedented measures to support the national currency. For example, the country's government will reimburse the owners of bank deposits in lira if the Turkish currency falls in price by an amount that exceeds the interest on deposits. In addition, the tax rate on investments in bonds denominated in lira will be reduced from 10% to 0%. And, of course, inflation will decrease in a few months.

All this, of course, is great, but how the bloodless Turkish economy will pay for these and other initiatives is not very clear. But it is clear that there is no trust in the lira and will not exist until Erdogan reads at least a couple of basic textbooks on economics.

The energy crisis continues in the meantime. Gas prices in Europe have renewed new records, surpassing 2000 per thousand cubic meters. For substitute goods, including oil, this is good news, but last time the rise in gas prices in the 2000 region in Europe was of an exclusively temporary nature, and in just a few days prices then collapsed by more than 50%. So you shouldn't rush to buy oil - on the contrary, its growth is a reason for more expensive sales.