US dollar rises ahead of Jackson Hole; Turkish lira rallies
THE greenback rose on Thursday (Aug 24) as investors awaited for US job data ahead of the Federal Reserve’s Jackson Hole symposium, while the Turkish lira rallied after a larger-than-expected central-bank rate hike.
Investors were cautious after softer-than-expected data in Europe and the US muddied the economic outlook, sending the safe-haven US dollar higher.
The US dollar index, which measures the greenback against a basket of six major currencies, rose 0.36 per cent to 103.72, bouncing from Wednesday’s drop, and set for a monthly rise.
Investors said they did not expect sharp moves as the US reports job data later in the day, as markets were cautious in case of possible surprises when Fed chair Jerome Powell speaks at Jackson Hole on Friday.
On Wednesday, 10-year US yields recorded their sharpest one-day slide in more than three months after data showed US business activity growth in August was its weakest since February, as the economy seems to be starting to stall.
“As the Jackson Hole symposium gets underway, market participants are looking for direction,” said Isabel Albarran, Investment Officer at Close Brothers Asset Management.
“Talk of stronger-than-expected data could point to ongoing inflation concerns, while a focus on the cooling labour market, weak PMIs and a downward trending CPI may point to rates being close to the peak,” she added.
More could come
Elsewhere, the Turkish lira rallied, up 3 per cent to 26.4040 against the US dollar after the Turkish Central Bank hiked the one-week repo from 17.5 per cent to a much larger than expected 25 per cent.
According to the median estimate in a Reuters poll, economists were expecting the policy rate to increase to 20 per cent.
Turkey’s central bank embarked on a tightening cycle in June after President Tayyip Erdogan appointed former Wall Street banker Hafize Gaye Erkan as governor.
The central bank on Thursday repeated its pledge to tighten policy further as necessary in a gradual manner, even as it raised its one-week repo rate by an aggressive 750 basis points.
“Today’s decision sends a very strong signal that the CBRT (central bank) is determined to rein in inflation and the initial market response is very positive,” said Piotr Matys, a senior FX analyst at Touch Capital Markets in London.
Weak growth
Adding to evidence of a faltering economy, surveys showed on Wednesday that Europe’s manufacturing output continued to shrink and services activity fell into decline, dampening any boon for the euro. The single currency fell 0.2 per cent to US$1.0839, after touching a two-month low on Wednesday.
British factory output slumped, leaving the economy on course for recession and prompting markets to trim expectations for further rate hikes from the Bank of England.
The pound fell 0.7 per cent to US$1.2653, moving towards an almost two-month low hit on Wednesday. “PMI data suggests that the outlook is not as great as one would hope, and that might suggest some caution on the part of developed market central banks in terms of further tightening,” said Bank of Singapore currency strategist Moh Siong Sim.
China’s yuan, which has been supported by state-bank buying in recent sessions, steadied at 7.2818 per US dollar.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
