The US dollar surged on Wednesday, buoyed by safe-haven inflows after Turkish authorities detained a top challenger to President Tayyip Erdogan, sending the lira tumbling. The US Dollar Index, which measures the greenback against six major currencies, rose 0.3% to 103.215, recovering from a five-month low.
The crisis in Turkey has fueled risk-off sentiment, strengthening the greenback. Concerns over massive tariffs introduced by President Donald Trump had previously weighed on the currency, but news of the arrest of Istanbul Mayor Ekrem Imamoglu on corruption charges has turned the market around. The main opposition party called the move a "coup against our next president", and the lira fell as much as 12% to an all-time low.
Attention now turns to the Federal Reserve's two-day monetary policy meeting that will soon conclude, with the central bank expected to keep interest rates on hold. Investors will be paying attention to the Fed's comments on Trump's trade policy as well as the latest economic outlook amid concerns of a possible recession. ING analysts said that while markets are expecting a dovish signal, the Fed is likely to stick to its inflation and employment mandates.
In Europe, the euro fell 0.4% to 1.0899, giving up some of its recent gains after hitting a five-month high. The fall came despite the German parliament approving a major spending plan. Latest inflation data in the eurozone came in lower than previously expected, easing concerns that price pressures will deter the European Central Bank (ECB) from continuing to cut interest rates. The pound sterling also fell 0.2% to 1.2974 but remains close to a four-month high.
In Asia, the Japanese yen weakened with the USD/JPY pair rising 0.3% to 149.85 after the Bank of Japan (BOJ) kept interest rates on hold at 0.5%. The decision reflects the BOJ's cautious approach amid global economic uncertainty, including the potential impact of rising US tariffs. Meanwhile, USD/CNY rose 0.1% to 7.2313 ahead of the latest meeting of the People's Bank of China (PBOC).
Global currency markets continue to move in a volatile environment, driven by geopolitical developments and key monetary policy. With the crisis in Turkey, the highly anticipated Fed meeting, and other central bank policies, movements in major currencies will continue to be influenced by a combination of shifting political and economic factors.
