Why's the Euro on the rise?

We are passing through a process where the arguments on whether the U.S. Federal Reserve (FED) will increase the interest are kindled.

As the U.S. Dollar goes into a decline when the U.S. data were below expectations, on the following week together with the influence of the FED's “I got this” type of announcements, the U.S. Dollar is shifting its direction upwards once again.

In this process, where we predominantly track the U.S. Dollar exchange rate, we also observe an increase in the Euro/TL parity's dynamism, which had been progressing horizontally for a while. So much that, the Euro/TL parity, which had been around 2.78 – 2.80 levels just a month ago, is now around 3.02 – 3.03 levels.

Since the global financial crisis in 2009, the problems in the European economy have been gradually increasing. As the structural issues are continuing while deepening and as the industry sector is weakening, it's also triggering the narrowing tendency in country economies.

It's being observed that the European Central Bank (ECB), which is attempting to decrease the effects of this negative situation that especially hit Southern European countries, is taking expansionist precautions.

The “monetary expansion” is equal to providing low-cost funds to the market in order to revive the real sector. In other words, an attempt is being made to provide a rivalry advantage against other countries by weakening the local currency's value by means of monetary expansion programs.

Even though ECB had only started buying bonds in March, the value of the Euro is being kept low within the context of implemented policies for a while now.

So much that, while the Euro/US Dollar parity was 1.40 just a year ago, it's now around 1.10 levels.

The rise in the Euro, which has been progressing on low levels for a while now, is based on the developments in the last two weeks.

Especially after the leading indicators of the manufacturing industries in Germany and the Euro Region came above the expectations, the upside tendency in the Euro gained speed.

In the same way, we cannot overlook the fact that, after the past 3 years, there is an increase in the loans given to establishments and households by the banks.

This situation is telling us that the positive effects of ECB's bond buys in March are now being seen. Moreover, we also need to state that after the U.S. - based developments, the Euro Region's government bond yields are on the increase and this situation is having an upside influence on the Euro.

The Euro, which has just seen the highest level in the past two months, will be acting in relation with the economic developments in the “Euro Region” and the progress of the debt crisis in Greece. In other words, from the point of the Euro Region, if the increase in the loans given to establishments and households continue and the positive effects of this increase on the economic activities are seen, then the upside tendency in the Euro will be preserved.

As it's already known, the raw materials, which are imported for usage in production, are being purchased mostly in U.S. Dollars. In other words, our manufacturers are processing the imported raw materials, which they purchase in exchange for U.S. Dollars, and are exporting them to Europe in exchange for the Euro. When all these variables are taken into consideration, we can see that this increase in the Euro will have a positive influence on our manufacturers' sale revenues.

As a result, the Euro had gained value, not only against the Turkish Lira, but also against all the other currencies including the U.S. Dollar. It's also recorded that the monetary expansion program behind this increase has positive effects on the European economy. We can say that every indicator in the European economy, which points at recovery, will be supporting the upside tendency in the Euro.