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US Dollar Defies Soft Inflation and Jobs Data, Surges Above Key Technical Level in Recent Rally

Yesterday, the Bank of England (BoE) announced its 12th consecutive rate hike, raising rates by 25 basis points. BoE Governor Bailey noted that the effects of past rate hikes would continue to impact the economy in the coming quarters and that while inflation was expected to fall quickly this year, it remained too high. Bailey also stated that the BoE would stay the course to bring inflation down with further rate increases. The announcement resulted in a drop in the GBP/USD pair, though it was largely driven by a stronger US dollar.

Despite softer-than-expected US PPI data and higher jobless claims, the US dollar rallied above a two-month bearish trend top. The EUR/USD chart suggests a potential downside correction before rebounding to the 1.12 medium-term target area. The S&P500 remained largely unchanged, with the Nasdaq100 extending gains to fresh highs.

In Turkey, the BIST100 rallied almost 8% as Muhammer Ince, one of the presidential election candidates, withdrew from the race. His withdrawal increases the chances of a defeat for President Erdogan, which could have significant implications for the Turkish lira. Despite ultra-loose monetary policy and negative real rates, a massive FX intervention program from the Central Bank of Turkey has kept the Turkish lira at levels significantly above fair market value. An Erdogan defeat could lead to a significant devaluation of the lira and readjustment of interest rates, causing wild volatility in the currency and Turkish equities.

On a personal note, the potential change in government and ruling party after years under Erdogan’s leadership could have significant shockwaves beyond the markets for those who have never experienced a different administration in Turkey.

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