© Reuters. FILE PHOTO: An illustration of US dollars, Swiss francs, British pounds sterling and euro banknotes, taken in Warsaw January 26, 2011. REUTERS / Kacper Pempel

By Joice Alves

London (Reuters) – The euro fell on Wednesday after a poll showed that German business morale deteriorated in November while the Turkish lira remained under pressure as President Tayyip Erdogan defended rate cuts despite rising inflation.

German business sentiment deteriorated for a fifth month as supply bottlenecks in the manufacturing industry and an increase in coronavirus infections clouded the growth prospects for Europe’s largest economy, according to the Ifo Institute.

At 1145 GMT, the euro fell 0.3% to $ 1.1216, near its lowest level of $ 1.1203 since early July 2020 in earlier London trade.

The one-month implied euro volatility rose to its highest level since January.

“Falling business expectations as COVID cases risk increasing German restrictions favor a sustained downward trend in the EUR,” said Jeremy Stretch, head of G10 FX strategy at CIBC, adding that the euro has fallen as low as $ 1.1190 could fall.

Analysts said the euro could weaken further if Germany introduces new COVID-19 restrictions after neighboring Austria once again imposed a full lockdown.

Chancellor Angela Merkel, who is preparing to hand over to a new government made up of Social Democrats, Greens and Free Democrats, invited the leaders of these parties to talks about the pandemic on Tuesday. Germany has registered almost 67,000 new coronavirus infections.

Meanwhile, the dejected Turkish lira fell after hitting an all-time low of 13.45 against the US dollar on Tuesday as it fell around 15% the day after Erdogan defended recent rate cuts. Most recently at 12.15 p.m. it was up 4.1% against the dollar.

There has been widespread criticism from those calling for action to reverse the currency’s slide, which hit record lows for 11 consecutive sessions. [EMRG/FRX]

“Given the high inflation of over 20%, this approach (lowering interest rates) is a bit unorthodox,” said Moritz Paysen, foreign exchange trader at Berenberg.

The US dollar continued its uptrend as bets were again made that the Federal Reserve will hike rates to curb inflation.

The index rose 0.2% to 96,680 after hitting a new 16-month high of 96,758 ahead of the minutes of the Federal Reserve’s Open Market Committee (FOMC) meeting in November and after rising following the re-nomination of Fed Chairman Jerome Powell .

The dollar was up against the yen to levels not seen since 2017, hitting 115.23 overnight.

“It will be interesting to see how much the opinions diverged between hawks and pigeons,” ING told its clients, even if the FOMC protocol will be out of date, as it happened before the data showed a surge in US inflation, which a strong case for tapering faster and tightening earlier, ING said.

A range of US data, including jobless claims, growth and the Fed’s preferred inflation measure, is expected later on the Wednesday before Thursday’s Thanksgiving holiday.

Overnight, the New Zealand dollar was the biggest driver of an otherwise quiet Asian session. After a lower-than-expected rate hike by the Reserve Bank of New Zealand, it was last down 0.65% to $ 0.6908.


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