Dollar Hits 5-week High On Inflation Worries; Lira Drops, Baht Soars

TOKYO (Reuters) – The U.S. dollar rose to a five-week high against major currencies on Monday as the safe haven benefited from domestic inflation worries and global growth faltered to post its biggest weekly gain since September. The Turkish lira fell to a two-month low after weekend elections appeared headed for a second round, while the Thai baht rose nearly 1% after Thailand’s opposition also ousted pro-war parties in a weekend vote. AD Money was boosted by a rise in Treasury rates after a survey of long-term inflation expectations of US consumers jumped to the highest level since 2011, raising the prospect of a rate hike by the Federal Reserve next month. Traders currently put the odds at 13 percent, which is close to zero before the University of Michigan study. However, before the end of the year, cuts of as much as three quarters of a point are estimated for the market. “In our view, there is an overestimation of FOMC (Fed) interest rates in the near term,” Joseph Capurso, head of international finance at Commonwealth Bank of Australia (OTC: CMWAY ) (CBA), wrote in a client note. “We understand that there are early signs that the US labor market is cooling and that core inflation is slowing (suggesting high rates,” he added. “However, continued high inflation and a tight labor market also mean a high bar for rate cuts in the near term.” Get the news you want Read news about market activity with a personal feed of the stocks that matter to you. Get the app Meanwhile, China is again worried about a global recession, as a series of disappointing data on imports and inflation pointed to tepid domestic demand. More evidence may come from Tuesday’s store sales report. The Chinese yuan fell to a two-month low of $6.9740 in foreign trade on Monday before recovering slightly to 6.9694. China’s central bank kept the seven-day reverse repo rate at 2 percent. The dollar index, which measures the currency against six major currencies, hit 102.75 for the first time since Asian trade on April 10, before easing slightly to 102.63. It rose 1.4 percent last week. The US dollar is oversold and the dollar index should move towards the CBA’s end-of-June target of 104 this week, Capurso said. The 10-year Treasury yield was little changed in Tokyo at around 3.47%. This has kept pressure on the yen, which tends to move inversely with long-term US yields. The Japanese currency fell to a low of 135.80 per dollar before last trading at 136.03. The euro rose 0.11% to $1.08605 after hitting a five-week low of $1.08445 earlier in the session. The dollar was last up 0.31% at 19.64 against the Turkish lira after earlier jumping to 19.70 for the first time since March 10. Turkey reached the second round of voting after President Tayyip Erdogan beat expectations and held a significant lead over his rival, but fell short of an absolute majority. The US currency fell 0.65% to 33.76 baht in Thai trade and had previously gained 0.92%. Thailand’s opposition parties won a stunning election victory on Sunday, but under parliamentary rules drawn up by the military junta, it was not certain they would form the next government.

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