Dollar hits another 13-month peak on continuing concerns over Turkey


TOKYO (Reuters) – The dollar hit another 13-month high against a basket of major currencies on Wednesday as safe-haven demand rooted in fears over fallout from the Turkish lira’s recent drop boosted the U.S. currency.

A U.S. dollar banknote is seen on top of Turkish lira banknotes in this picture illustration in Istanbul, Turkey August 14, 2018. REUTERS/Murad Sezer/Illustration

The greenback’s strength – overnight it also hit a 13-month high – has been bolstered by a fall for the euro EUR=, dogged by concerns over exposure of European banks to Turkey.

“In light of all the turmoil we’ve seen out of Turkey and the subsequent contagion into other emerging markets, the dollar is pretty much establishing itself as the safe-haven currency,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

“The dollar is the higher-yielding of the safe-haven currencies, so it obviously will attract the most flows. If you are going to park your money somewhere to stay away from the turmoil, the dollar is going to be the currency of choice,” he said.

As of 0353 GMT on Wednesday, an index that tracks the dollar against the euro, yen and four other currencies .DXY rose 0.1 percent to trade as high as 96.862, its highest level since reaching 97.447 on June 27, 2017.

“In the current environment, the appeal of currencies other than the dollar has faded quite a lot,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings.

The Turkish lira started slipping again after rebounding more than 8 percent overnight.

The currency briefly traded about 3 percent weaker at 6.58 to the dollar TRYTOM=D3 before recouping some losses to 6.45 as of 0423 GMT. On Monday, it plunged to an all-time low of 7.24.

The lira has lost more than two-fifths of its value against the greenback this year, hit by worries over President Tayyip Erdogan’s calls for lower interest rates and fraying ties between the United States and Turkey, a NATO ally.

Erdogan said on Tuesday that Ankara would boycott electronic products from the United States, retaliating in a row with Washington.

The lira was supported by remarks from Turkish Finance Minister Berat Albayrak, who told a news conference the currency will strengthen.

The euro was down about 0.2 percent at $1.1324 EUR=, crawling back after touching a new 13-month low of $1.1319.

The common currency traded at 1.1283 Swiss franc EURCHF=, near a 13-month low of 1.1266 franc touched overnight.

“Once we got into August there was quite a bit of selling (of the euro), and it accelerated with the Turkey situation,” said Wakabayashi.

Against the yen JPY=, the dollar rose about 0.1 percent to about 111.27 yen.

The pound GBP=D3 also hit a 13-month low, dropping 0.2 percent to $1.2694 on the back of weaker-than-forecast wage growth figures released on Tuesday.

“With the Bank of England unlikely to raise rates for some time (the market prices the next hike for 12 months’ time), U.K. economic data will be a second-order consideration for the pound compared to Brexit negotiations for now,” Nick Smyth, an interest rate strategist at BNZ Markets in Wellington, said in a note.

China’s offshore yuan weakened about 0.3 percent, last trading at 6.9175 yuan per dollar CNH=D3 after falling as far as 6.9210, its lowest level since March 2017.

(This version of the story corrects headline to say 13-month peak rather than 3-month)

Reporting by Daniel Leussink; Editing by Eric Meijer and Richard Borsuk

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