Amidst our focus on variables such as inflation, interest rates, and exchange rates, the developments overseas that will impact the currencies we closely monitor, namely the US Dollar and the Euro, do not bode well for us.

Let's start by examining the United States. Federal Reserve Chair Jerome Powell, acknowledging that there is "no painless way" to combat inflation, refers to the slowing of the US economy without plunging into a recession, which could result in unemployment. Powell indicates that as a consequence of monetary tightening, the economy needs to decelerate, stressing that they won't be able to achieve the target inflation rate of 2% on a permanent basis without experiencing a certain level of employment loss.

However, things aren't going quite as planned for the Fed. For instance, the growth data for the first quarter of 2023 was revised upwards once again. Initially, the data released in April showed a 1.1% growth in the US economy for the first quarter. By the end of May, this figure had been updated to 1.3%. On the same note, this data was revised to 2% just last Thursday. Given that this growth data emerged during a period of the largest and most robust monetary tightening in US history, it implies that the Fed needs to implement further monetary tightening. As you can imagine, an increase in the dosage and/or duration of tightening by the Fed increases the pressure on other currencies, particularly those of developing economies like Türkiye. We currently anticipate two more 25 basis point interest rate hikes by the Fed by the end of the year. But, for now, that is...

It's not just against the Dollar that currencies of developing countries are losing value. Data coming from the European Union also suggests that the European Central Bank (ECB) will continue with interest rate hikes for a while longer. Germany, the largest economy in the Eurozone, saw its annual inflation rise to 6.8% in June.

Just two days before the release of Germany's inflation data, ECB President Lagarde stated at a meeting, "As long as there are no significant changes in the outlook, we will continue with interest rate hikes in July." Additionally, let's take note of Lagarde's remark that interest rates will remain at sufficiently high levels.

As you can see, both the bosses of the Dollar and the Euro are signaling continued interest rate hikes. We can expect both the Fed and the ECB to continue raising interest rates in the coming months. This indicates an upward trajectory for foreign exchange rates.

Allow me to provide a brief comment on the potential impact of this situation. If we look at the reflections of Türkiye's current economic management's policies on the exchange rate so far, we can see that the pass-through effect from the exchange rate to inflation will likely be greater in the upcoming period than in previous rates.