Dollar hits 5-week high on inflation worries; lira drops, baht soars

By Kevin Buckland

TOKYO (Reuters) – The U.S. dollar rose to a five-week high against major peers on Monday as the safe-haven currency benefited from inflation worries at home and growth concerns globally, extending gains after its biggest weekly increase since September.

The Turkish lira sank to a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand’s opposition routed military-allied parties also in weekend polls.

The greenback was buoyed by a rise in Treasury yields after a survey of U.S. consumers’ long-term inflation expectations jumped to the highest since 2011, putting a possible Federal Reserve rate hike next month back in play.

Traders currently put those odds at 13%, from close to zero prior to the University of Michigan’s poll. However, there are still as many as three quarter-point cuts priced into the market by year-end.

“Too many FOMC (Fed) rate cuts are priced for the near term in our view,” Joseph Capurso, head of international economics at Commonwealth Bank of Australia (OTC:) (CBA), wrote in an client note.

“We acknowledge there are tentative signs the U.S. labour market is cooling and underlying inflation is easing, (which) imply a high bar to rate hikes,” he added. “But the still-high inflation and tight labour market also imply a high bar to rate cuts in the near term too.”

China, meanwhile, is at the centre of renewed worries about a global recession after a spate of disappointing economic data including imports and inflation pointed to tepid domestic demand. More evidence could come from Tuesday’s retail sales report.

The dipped to a fresh two-month low of 6.9740 per dollar in offshore trading on Monday before coming back slightly to 6.9694.

The People’s Bank of China kept its seven-day reverse repo rate unchanged at 2%.

The , which measures the currency against six major peers, reached 102.75 for the first time since April 10 in early Asian trading before then easing slightly to 102.63. It rallied 1.4% last week.

The U.S. dollar is oversold and the dollar index should move toward CBA’s end-June target of 104 this week, Capurso said.

The was little changed in Tokyo, hovering around 3.47%.

That kept pressure on the yen, which tends to move inversely to U.S. long-term yields. The Japanese currency dipped at low as 136.03 per dollar before last trading flat at 135.80.

The euro ticked up 0.11% to $1.08605 after dipping to a fresh five-week low of $1.08445 earlier in the session.

The dollar was last up 0.31% at 19.64 Turkish lira after earlier jumping to 19.70 for the first time since March 10.

Turkey headed for a runoff vote after President Tayyip Erdogan outperformed projections, holding a sizable lead over his rival but falling short of an outright majority.

The U.S. currency sank 0.65% to 33.76 baht in onshore Thai trading, and earlier dipped as much as 0.92%.

Thailand’s opposition parties secured a stunning election win on Sunday, but it was far from certain whether they will form the next government, with parliamentary rules written by the military junta.

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