The U.S. dollar strengthened on Wednesday, benefiting from safe-haven flows after Turkish authorities detained Istanbul Mayor Ekrem Imamoglu, the main political rival of President Tayyip Erdogan. The Turkish lira plunged in response, hitting an all-time low.
At 0:45 ET (11:45 GMT), the Dollar Index—which measures the greenback against a basket of six major currencies—traded 0.3% higher at 103.215, rebounding from a five-month low.
Turkish Crisis Triggers Market Uncertainty
The dollar had been under pressure due to concerns that President Donald Trump’s recent tariff policies could weigh on economic growth. However, it found support after Turkish authorities arrested Imamoglu on charges of corruption and aiding a terrorist group.
Turkey’s main opposition party called the arrest “a coup against our next president,” leading to a sharp selloff in the lira, which dropped as much as 12 percent in a risk-off move.
Market focus will soon shift to the Federal Reserve’s policy decision later in the session. The central bank is widely expected to keep interest rates unchanged, but investors will be closely watching its guidance on the economic outlook, particularly regarding U.S. trade policies and recession risks.
“The chances of a cut are none,” analysts at ING said 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 end of the year.
Euro Retreats After Recent Gains
In Europe, EUR/USD fell 0.4 percent to 1.0899, giving back some of its recent gains after reaching a five-month high. The euro had been supported by Germany’s outgoing parliament approving a major spending increase.
“The euro has fully priced in the success of the spending reform and appears close to peak market optimism on the fiscal boost,” ING analysts said. “We must consider that Germany still doesn’t have a government, and coalition talks may prove tricky.”
Meanwhile, eurozone inflation came in at 2.3 percent for February, slightly below the initial estimate of 2.4 percent. This lower-than-expected reading may ease concerns that strong inflation pressures could prevent further European Central Bank rate cuts.
The British pound also weakened, with GBP/USD falling 0.2 percent to 1.2974. Despite the decline, it remains close to the four-month high of 1.30 reached in the previous session. The Bank of England is expected to keep interest rates unchanged on Thursday after U.K. inflation edged higher last month.
Yen Slips After Bank of Japan Meeting
In Asia, the Japanese yen weakened, with USD/JPY rising 0.3 percent to 149.85 after the Bank of Japan held its short-term interest rate at 0.5 percent earlier Wednesday. The decision reflects the central bank’s cautious stance amid global economic uncertainties, including potential fallout from U.S. tariffs.
Meanwhile, USD/CNY edged 0.1 percent higher to 7.2313 ahead of the People’s Bank of China’s latest policy meeting.
