Dollar Edges Lower; Lira Slumps After Surprise Rate Cut

© Reuters.

By Peter Nurse

AiVIF.com - The dollar edged lower Monday, trading near one-month lows as investors continue to assess the likelihood of U.S. rate hikes in the near term, while the Turkish lira slumped following a surprise rate cut and heightened political tension.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 93.552, just above a one-month low.

USD/JPY traded 0.2% higher at 113.65, EUR/USD rose 0.1% to 1.1653, GBP/USD traded 0.1% higher at 1.3769, while the risk sensitive AUD/USD rose 0.3% to 0.7484.

Weighing on the dollar were comments from Federal Reserve Chair Jerome Powell on Friday indicating that it’s not yet time to begin raising interest rates.

The central bank is widely expected to begin reining in its bond-buying program next month, but investors have also priced in Fed rate hikes starting in the second half of next year.

“The dollar rally has stalled recently even though interest rate markets continue to hawkishly re-price the Fed policy cycle,” said analysts at ING, in a note. “Explaining that may be the better risk environment, where 3Q earnings have come in on the strong side and renewed interest has been shown in the commodity pairs on the back of supply challenges in this sector.”

While Powell tried to downplay expectations of early U.S. rate hikes, the prospect of inflation hastening the pace of rate hikes outside the United States is growing.

The Bank of Japan and the European Central Bank are set to hand down their respective policy decisions on Thursday. Nothing new is expected from those central banks, but markets are pricing in a near 60% chance of a hike from the Bank of England next week.

Elsewhere, USD/TRY rose 2.3% to 9.7990, with the Turkish lira falling to a record low against the dollar after President Tayyip Erdogan said he had ordered the expulsion of the ambassadors of the United States and nine other Western countries for demanding the release of businessman Osman Kavala, who has been held in prison for four years without being convicted.

The currency had already hit record lows last week after the Turkish central bank cut its policy rate by 200 basis points, a move that surprised the market given the country’s rising inflation.

Additionally, USD/RUB rose 0.1% to 70.425, with the Russian ruble just falling back from a 16-month high after the Bank of Russia raised its benchmark rate by 75 basis points to 7.5% on Friday, its biggest interest-rate increase since July and its sixth straight hike.