Dollar edges back from a 16-month peak

On Thursday, the dollar started decreasing from its 16-month high. At the same time, traders evaluated if the U.S. currency’s current surge had gone too far. Central banks fueled this surge after tightening expectations in the middle of surging inflation around the world.

On Wednesday, the dollar index (which measures the currency against a basket of six rivals) reached its highest level at 96.227. It happened for the first time since the beginning of 2020. However, it was last down 0.274% at 95.553.

A currency strategist at Wells Fargo Securities, Erik Nelson, said that they had a massive move in the past several weeks in the dollar. In his opinion, it is taking a breather now.

Recent U.S. data showed that in October, inflation was running at its highest since the beginning of 1990.

Managing director of FX strategy at BK Asset Management, Boris Schlossberg, the dollar had a full rally. 

The euro increased 0.46% to $1.13696, while on Wednesday, the dollar hit a 16-month low below $1.15.

Sterling edged over 0.2% versus the greenback reaching $1.3495. On Wednesday, it jumped 0.6% after the reported data showed increasing inflation in Britain in October. It accumulated pressure on the BoE to hike interest rates at its following meeting in December.

The New Zealand dollar increased 0.56% to $0.7037 after a central bank survey showed that they expect near-term inflation to grow.

The Turkish lira dropped another 2.84% after the central bank of Turkey cut rates to 15% (by 100 basis points), even in the face of inflation near 21%, sending the currency plunging southwards.

Overview

Senior market analyst at Oanda, Edward Moya, said that the lira continues to be volatile. He added that further instability and decline have no end in sight.

This month, the lira lost approximately 11.6% of its value after President Tayyip Erdogan quoted criticism of interest rates and calls for stimulus despite the risks. The currency was last at 10.908, which earlier hit a record low of 11.31 per dollar.

Commodity-related currencies bounced along with prices of oil, which had earlier moved to its six-week lows.

The Canadian dollar started to move away from a six-week low, climbing 0.08% to C$1.26, equal to 97.39 U.S. cents. Markets expect that the Bank of Canada will start increasing rates from the beginning of the following year.

The Australian dollar also started to move from a six-week low of $0.7252. It was last up 0.17% at $0.72765.

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