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Dollar Retreats From 16-Month High; Lira Slumps Ahead of Meeting

The dollar edged lower Thursday, consolidating just below its 16-month high, while the Turkish lira slumps ahead of the country’s latest central bank meeting.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 95.775, after hitting its highest since July 2020 on Wednesday at 96.226.

EUR/USD edged higher to 1.1324, recovering from its trip below 1.13 for the first time since July 2020, USD/JPY was flat at 114.08, GBP/USD rose 0.2% to 1.3508, and AUD/USD rose 0.3% to 0.7291.

The dollar has benefited in recent weeks from the market’s assessment that the Federal Reserve will be quicker to move against the rising inflation levels than many of its advanced economy contemporaries, a perception reinforced in the last month by strong labor market and retail sales data.

By contrast, European Central Bank President Christine Lagarde has made it clear this week that early interest rate hikes are not on her agenda, a stance not exactly challenged by figures

showing European car sales down 30% on the year in October, and the Bank of Japan is expected to keep adding stimulus to its beleaguered economy, accommodating a major fiscal stimulus package due to be unveiled by Prime Minister Kishida.

The possible exception, among G7 central banks, is the Bank of England after a spike in Britain's October inflation piled pressure on it to hike rates at its meeting next month.

“We had felt the 96.00/96.10 area would be a good target for DXY [the dollar index] this month,” said analysts at ING, in a note. “We are reluctant to chase the move higher through these big resistance levels (96.10 being the 50% retrace of last year's DXY drop), but the factors that got DXY here look unlikely to abate soon.”

The main economic data release Thursday will be the weekly initial jobless claims number, which is expected to show 260,000 claimants last week, a drop from 267,000 the previous week, and a fresh post-pandemic low.

In Turkey, President Recep Tayyip Erdogan has continued to exert pressure on the country’s central bank to lower interest rates, and Turkey’s central bank is expected to deliver later Thursday despite a weakening currency and elevated levels of inflation.

All but two of 24 economists surveyed by Bloomberg expect Governor Sahap Kavcioglu to cut the benchmark for a third successive meeting, after reducing its benchmark rate by 300 basis points over the last two gatherings.

USD/TRY rose 0.9% to 10.7041 in anticipation of another rate reduction. The lira has already fallen nearly 30% against the dollar this year, and more than 15% this quarter alone as Erdogan has intervened more directly in monetary policy.

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