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Forex - Dollar Rides Euro Slump Above Year High Amid Turkish Lira Rout

ForexAug 10, 2018 01:25PM ET
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© Reuters. The Dollar rose to more than one-year highs on Friday

Investing.com - The dollar rose to fresh 2018 highs against its rivals Friday after the euro slumped on concerns about European banks' exposure to Turkey as the country's currency crashed.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.88% to 96.30.

Turkey's lira dropped to a record low against the dollar after President Donald Trump doubled metals tariffs on Turkey. That stoked investor concerns about Turkey's ability to pay its debts, leaving many fearing the fallout could spread beyond Turkey's border.

Fears of market contagion were somewhat justified after reports surfaced that the European Central Bank was assessing its exposure to Turkey.

Data from the Bank for International Settlements showed that banks in Spain, France and Italy had the highest exposure to the Turkish economy at the end of the first quarter, adding up to $81 billion, $35 billion and $18 billion respectively.

Analysts, however, were quick to downplay the impact on European banks, citing most of the exposure was to Turkish equity, and not a falling lira.

"Spanish banks are not owed US$83.3bn and French banks are not owed in FX, this is local bank subsidiaries' balance sheets in Turkey, which are mostly in lira," Tim Ash, EM sovereign debt strategist at BlueBay, said.

"European banks' exposure in Turkey through these subsidiaries is really just limited to equity," Ash said.

That did little to stop investors betting against the euro, however, as the single currency suffered its biggest slump in more than a year, underpinning the greenback.

EUR/USD fell 1.15% to $1.1396.

Upbeat U.S. consumer inflation data, meanwhile, supported the dollar's advanced, reaffirming investor expectations for the Federal Reserve to hike rates twice more this year.

The Labor Department said on Thursday its consumer price index rose 0.2% last month, and core CPI rose 2.4% last month, higher than economists' estimates.

GBP/USD fell 0.62% to $1.2748 as data showing the U.K. economy steadied in the second quarter of year was overshadowed by ongoing fears of a no-deal Brexit.

The yen, meanwhile, strengthened as the rout of the Turkey's lira triggered safe-haven demand.

USD/JPY fell 0.36%% to Y110.68, USD/CAD rose 0.74% to C$1.3144.

Forex - Dollar Rides Euro Slump Above Year High Amid Turkish Lira Rout
 

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