Currencies: Dollar slips, offers respite to emerging-market currencies including Turkey’s lira

Currencies: Dollar slips, offers respite to emerging-market currencies including Turkey’s lira

The U.S. dollar on Tuesday relinquished the previous session’s gains as its main rivals, the euro and the British pound, staged a modest rebound.

The ICE U.S. Dollar Index DXY, -0.20%  was down 0.3% at 95.118, letting its G-10 counterparts as well as most of emerging-market currencies strengthened. The buck shrugged off June job openings data, which inched up to the third-highest level on record.

The euro EURUSD, +0.3289%  bought $1.1595, from $1.1555 late Monday, while the British pound GBPUSD, +0.0850%  was little changed at $1.2948, after worries over a so-called hard Brexit, with no predefined relationship with the European Union in place, dragged sterling to an 11-month low Monday.

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In emerging markets, the Turkish lira USDTRY, -1.4969%  gained altitude versus the dollar, rising 0.8% from Monday’s level, when it sold off some 4.9% against the dollar.

The move “came after the [Turkish] central bank announced a cut in the reserve requirement ratio for commercial banks, a measure that looks to boost dollar liquidity by $2.2 billion,” wrote Elsa Lignos, global head of FX strategy at RBC, in a note. “Negative policy developments and rising U.S.-Turkey tensions easily overshadowed the CBRT’s attempt to stem lira depreciation as it was considered a shy measure that only reaffirms its unwillingness to hike rates.”

Turkey’s central bank has been caught between buoyant double-digit, consumer-price inflation, an ailing currency and a government critical of higher interest rates. This has put a damper on the CBRT’s arsenal to combat its worsening financial and economic conditions. As borrower in U.S. dollars, Turkey has also felt the pain from the strengthening greenback over the past months.

On top of that, a diplomatic rift between Ankara and Washington has erupted about the detention of a U.S. pastor within the country.

One buck last bought 5.2907 lira, compared with 5.3310 late Monday. The next central bank meeting is scheduled for Sept. 13. In the year, the lira is down more than 40% against the dollar.

Elsewhere, traders are waiting for the monetary policy statement of the Central Bank of Argentina, which is expected to keep its key interest rate unchanged. Argentina is in a similar situation as Turkey The country has been mainly issuing dollar-denominated debts, making a stronger buck harmful to its fiscal profile. Although the Argentine peso USDARS, -0.2452%  has dropped some 47% against the dollar in 2018 so far, the domestic central bank has been hiking rates in an attempt to attenuate the weakening of its currency.

One dollar last bought 27.1890 pesos, down 0.5%, according to FactSet.

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