Euro falls as Erdogan defends rate cuts

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Euro falls as Erdogan defends rate cuts

London, November 24, Reuters -- The euro fell on Wednesday after a survey showed 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 worsened for a fifth month as supply challenges in manufacturing and a spike in coronaviruses clouded the growth outlook for Europe's largest economy, according to the Ifo institute.

The euro was close to its lowest level since July 2020, as it was at $1.1216 at 1145 GMT, close to its lowest level since early July 2020, according to earlier London trading.

Since January, the implied euro volatility has gone up to the highest level since January.

As COVID cases increase German restrictions favors ongoing EUR downside, the euro could fall to as low as $1.1190, said Jeremy Stretch, head of the G 10 FX strategy at CIBC.

After Austria imposed a full lockdown, analysts said the euro could weaken further if Germany implements new COVID 19 restrictions.

Angela Merkel, who is preparing to hand over a new government of Social Democrats, Greens and Free Democrats, called in the leaders of these parties on Tuesday to discuss the pandemic. In Germany, there were almost 67,000 new coronaviruses.

The Turkish lira fell around 15% on Tuesday after it hit an all-time low of 13.45 against the U.S. dollar after Erdogan defended recent rate cuts. It was up 4.1% against the dollar at 12.15 last time.

There are widespread criticism from those calling for action to reverse the slide in the currency, which has hit 11 consecutive sessions of record lows.

Moritz Paysen, FX trader at Berenberg, said that this approach lowering rates is somewhat unorthodox given the high inflation of over 20%.

The Federal Reserve will hike rates to tame inflation, and the U.S. dollar continued its upward trend on renewed bets on new bets that the Federal Reserve will hike rates.

The index rose 0.2% to 96.680 after touching a fresh 16 month high at 96.758 ahead of the minutes of the November Federal Reserve Open Market Committee FOMC meeting and after a surge that followed the re-election of Fed Chair Jerome Powell.

The dollar has climbed compared to the yen to levels not seen since 2017, hitting 115.23 overnight.

Even if the FOMC minutes take place before data showed U.S. inflation surged, there will be a strong argument for tapering and earlier tightening, ING told clients.

A slew of U.S. data, including jobless claims, growth and the Fed's preferred inflation measure, are due later on Wednesday ahead of the Thanksgiving holiday on Thursday.

Overnight, the New Zealand dollar was the biggest mover in an otherwise quiet Asian session. It was down 0.65% to $0.6908 after a smaller than expected rate hike by the Reserve Bank of New Zealand.