US dollar holds near 13-month peak as emerging market peers wobble

[TOKYO] The dollar held near a 13-month peak on Thursday as political turmoil in Turkey and concerns about China's economic health continued to support safe-haven assets and weighed on emerging market currencies.

The dollar index against a basket of six major currencies stood at 96.756 after rising to a 13-month high of 96.984 the previous day.

The greenback drew strength after a tough week for emerging market currencies, initially led by the rout in the Turkish lira. The currency plunged to an all-time low at the start of the week as tensions between Ankara and Washington flared and worries increased about President Tayyip Erdogan's economic stance.

The lira has since recovered to 6.00 per dollar after slumping to a record low of 7.24 on Monday.

However, the rebound did little to lift its emerging market counterparts, with the Indian rupee stuck near a record low, the South African rand shedding more than 2 per cent overnight and the Chinese yuan at its weakest in 15 months after a raft of data pointed to a slowing economy.

"Recent dollar gains reflect weakness in emerging market currencies and the euro, with 'risk off' driving flows into the US currency," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Recent weakness in Chinese assets have helped fan risk aversion in the broader markets and investors waited to see whether Beijing would draw a "line in the sand" to arrest the yuan's fall.

Mr Ishikawa added that market focus was moving beyond the lira to wider political risks.

"Rather than Turkey's economy, its political situation is now seen as a much larger risk. Turkey's stand-off with the United States could nudge it closer to countries like Russia, China and Iran, increasing geopolitical risks associated with the region," he said.

The euro stood little changed at US$1.1343, close to a near 14-month trough of US$1.1301 set the previous day. Concerns that European banks would be negatively affected by financial turmoil in Turkey have weighed on the single currency.

The pound was a shade lower at US$1.2686, within close reach of a 13-month low of US$1.2662 brushed on Wednesday when the dollar's broad strength offset an unexpected drop in Britain's unemployment rate.

The yen, another perceived safe-haven along with the dollar, remained on a bullish footing.

The dollar was down 0.2 per cent at 110.555 yen, the euro slipped 0.2 per cent to 125.38 yen and the Australian dollar lost 0.15 per cent to 80.03 yen.

REUTERS