Dollar slips from near five-week high; Turkish lira weakens

Investing.com - The U.S. dollar edged lower in early European trade Monday, but remained near a five-week high on inflation concerns, while the Turkish lira retreated on political uncertainty.

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 102.420, after climbing to 102.75 for the first time since April 10 earlier in the session.

The Federal Reserve raised interest rates last week for a 10th straight time, but hinted that it may be about to pause the most aggressive round of policy tightening in 40 years as it studies the economic data and assesses the impact of the tightening to date.

Consumer prices rose 4.9% in April, a drop from 5% in March, but still far higher than the Fed's 2% target, suggesting inflation remained sticky, while a survey of U.S. consumers' long-term inflation expectations jumped to the highest since 2011.

Fed Governor Michelle Bowman said on Friday that the U.S. central bank will probably need to raise interest rates further if inflation stays high.

"Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time," Bowman said.

Also helping the dollar has been its safe haven status amid default concerns with no agreement of raising the country’s debt ceiling in sight.

The main players, including President Joe Biden and House Speaker Kevin McCarthy, are likely to meet early this week to discuss budget negotiations after Friday’s meeting was canceled.

“We still think investors are worryingly eyeing a scenario where it would ultimately take an adverse market reaction to break the impasse, and lack of any progress towards a deal can definitely continue to offer some support to the dollar,” said analysts at ING, in a note.

Elsewhere, USD/TRY rose 0.4% to 19.6350, with the Turkish lira sinking to a two-month low after weekend presidential elections failed to come up with a concrete result, with neither current President Recep Tayyip Erdogan nor rival Kemal Kilicdaroglu crossing the 50% threshold needed to avoid a runoff.

The pair will now go head to head on May 28, with another contender Sinan Ogan now ruled out, resulting in two more weeks of uncertainty.

EUR/USD rose 0.2% to 1.0868, after dipping to a fresh five-week low of 1.0845 earlier in the session. 

The Eurozone is set to release revised data on first quarter GDP on Tuesday, with economists expecting the bloc's economy to have expanded by just 0.1% in the three months to March. 

GBP/USD rose 0.1% to 1.2471, USD/JPY climbed 0.4% higher to 136.25, AUD/USD rose 0.5% to 0.6678, while USD/CNY edged lower to 6.9579, with the yuan trading at an over two-month low against the dollar earlier Monday.