Dollar surges on safe-haven flows; Fed meeting looms large

Investing.com - The U.S. dollar rose Wednesday, boosted by safe-haven flows after Turkish authorities detained President Tayyip Erdogan’s main political rival, with the Turkish lira slumping.

At 0:45 ET (11:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 103.215, bouncing off a five-month low. 

Turkish crisis spurs risk-off move  

The greenback has struggled of late amid concerns that the uncertainty stemming from U.S. President Donald Trump’s sweeping tariffs will hit economic activity going forward.

However, it received a boost earlier in the session after Turkey detained Istanbul mayor Ekrem Imamoglu, the main rival of President Tayyip Erdogan, on charges of corruption and aiding a terrorist group.

The main opposition party described the move as "a coup against our next president", and Turkey’s lira currency crashed as much as 12% to an all-time low against the dollar in response in a risk-off move.

Attention, however, will quickly turn to the conclusion of the Federal Reserve’s two-day policy meeting later in the session, where the central bank is expected to hold interest rates unchanged.

Investors will closely scrutinize the Fed’s commentary on recent trade policies, including tariffs imposed by the Trump administration, along with its updated economic forecasts, amid heightened fears of a potential recession.

“The chances of a cut are none,” said analysts at ING, in a note, “but the recent repricing in the USD curve suggests some dovish tweaks to forward guidance are expected by the market. We are not convinced. The Fed has an inflation and employment mandate, and neither of those has declined enough to warrant a dovish shift.”

Traders are currently pricing in nearly 60 basis points of Fed rate cuts by the year end

Euro hands back some gains

In Europe, EUR/USD traded 0.4% lower at 1.0899, handing back some of the single currency’s recent strong gains, having climbed to a five-month high, supported by Germany’s outgoing parliament approving plans for a massive spending surge.

“The euro has fully priced in the success of the spending reform and appears close to peak market optimism on the fiscal boost. We must consider that Germany still doesn’t have a government, and coalition talks may prove tricky,” ING said.

Data released earlier in the session showed that eurozone inflation was lower last month than first estimated, at 2.3% in February, below the 2.4% first reported.

This will have eased concerns that unexpectedly strong price pressures could prevent further ECB interest rate cuts.

GBP/USD fell 0.2% to 1.2974, but remains not far from the previous session’s four-month high above 1.30.

The U.K. central bank is widely expected to keep interest rates unchanged on Thursday after inflation edged higher last month.

Yen slips after BOJ meeting 

In Asia, USD/JPY climbed 0.3% to 149.85, after the Bank of Japan maintained its short-term interest rate at 0.5% earlier Wednesday. 

This decision reflects the central bank’s cautious approach amid global economic uncertainties, including potential impacts from rising U.S. tariffs.

USD/CNY traded 0.1% higher to 7.2313, ahead of the latest meeting of the People’s Bank of China later in the session.