Forex
Investors lament lost opportunity after unconvincing Turkish rate hike
Foreign investors hoping for a game-changing rate hike from Turkey’s newly appointed central bank chief said Thursday’s disappointing move to a key rate of just 15% could keep some money on the sidelines.
The appointment of U.S.-trained banker Hafize Gaye Erkan to lead the bank boosted expectations that it would rapidly raise rates to unravel years of unorthodox policies as quickly as possible.
But the 650 basis point hike – to 15% – was well below the median rate expectation in a Reuters poll of a rise to 21%, leaving some fretting that Erkan might have limited room to aggressively tackle inflation.
“They lost one perfect chance to demonstrate that they mean business,” said Viktor Szabo, emerging markets investment director with Abrdn. “Whether it’s because they have political constraints, or they’re afraid for the banking system, it’s not great. It’s not a great message.”
Newly re-elected President Tayyip Erdogan, a self-described enemy of high interest rates, for years directed a heavily managed economic system, with a tightly controlled lira, rate cuts in the face of galloping inflation and plentiful credit for local borrowers.
Amidst tumbling reserves and fleeing investors, his choice of Erkan at the central bank, and investor darling Mehmet Simsek as finance minister, prompted bets for a quick turnaround to unravel some of these policies.
But analysts said that after Thursday’s decision, Erkan and Simsek would need to work even harder to prove the country had indeed shifted course.
“They look less credible now,” Eric Fine, portfolio manager of emerging market debt at VanEck, said of the central bank, adding: “They need to hike rates to whatever level prevents the need for currency interventions using reserves. They haven’t.”
Turkey’s lira suffered a second consecutive day of declines on Friday, hitting a fresh record low of 25.74 to the dollar before retracing, while the country’s international bonds eked out small gains after tumbling on Thursday.
Already in the week to June 16, foreign investor holdings of Turkish government bonds had fallen by $16.2 million.
“For now, it’s not enough, probably, for long-term investors. Because of the magnitude of some of the problems in the economy,” said Marek Drimal, a lead strategist at Societe Generale.
CAUTION AND TEMPERED DISAPPOINTMENT
Still, many, including Drimal, saw positive signs, and noted that even Simsek had repeatedly said that gradual rate moves were move likely.
Simsek also promised predictable, market-based economic policies and an inflation-targeting model would enable capital inflows.
“I think investor disappointment should be tempered,” said Dan Wood, portfolio manager at William Blair, adding that the bank also signalled that it will keep hiking rates until inflation improved.
“It is clearly positive that a return to a more orthodox economic policy has been signalled.”
The associate director of ratings agency Scope Ratings and a sovereign analyst at ratings agency Fitch also said the hike itself was positive – but the core question would be whether Erdogan allows Erkan to stay the course with continued rises.
“I don’t think investors will throw in the towel just yet because I think there is still expectation there is more to come in the coming months,” said Kaan Nazli, portfolio manager at Neuberger Berman.
“The market is very cautious – so to regain confidence, that will take a long time. I would think that you would need to maintain tight policy for a considerable amount of time for significant, more long-term inflows to come in.”
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Unbiased review of Pocket Option broker
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
- Forex2 years ago
The dollar is down again against major world currencies
