Will the dollar and euro soon be equal?

The challenges faced by the global economy are giving rise to new debacles almost daily now. Most recently, it seems that the consequences of the Russia-Ukraine war have added fuel to the fire. 

The developments that emerged with the war caused global growth estimates to be revised downward. In the April World Economic Outlook Report, the International Monetary Fund (IMF) dropped its global growth estimates from 4.4 percent to 3.6 percent. Even this forecast can be deemed as quite optimistic, because the general inclination at the time of this projection was that the war would end soon. However, the world's course of events took a more complicated turn. 

IMF’s report titled “War Sets Back the Global Recovery” makes one other important point: The current developments will trigger yet higher inflation. Though countries’ central banks are tightening their monetary policies, many economies are struggling with the ongoing effects of the pandemic, as well as the additional problems caused by the war, and have a limited area for fiscal policy. 

Of course, another significant issue is stagnation. In other words, inflation and recession happening simultaneously. The recent steps taken by central banks, including Fed, in their austerity policy, the developments associated with the Russia-Ukraine war, and the problems faced in supply chains are increasing the risk of recession. Meanwhile, those same risks are increasing the pressure of inflation as well. 

This question is critical for Turkey’s economy. The discrepancy between the dollar and euro narrowing has a negative impact on profitability for many sectors and is causing challenges for exporters.

Energy, metal, food, and other raw materials prices worldwide are priced in the global stock exchange markets based on the U.S. dollar. On the other hand, Turkey’s exports are mainly based on the euro. 

As the Fed continues to pursue its tightening policies and the European Central Bank remains slow to take action, the value of the dollar goes up against the euro, similar to its appreciation against all other currencies. At the time of writing this article, the euro/dollar parity was about 1.05. This rate was 1.25 in mid-2017. There are increasing evaluations that the parity may lean toward “1 dollar = 1 euro” in the upcoming days. This stands before us as an issue we need to closely monitor in terms of our profitability in exports.