September 14, 2018 / 12:49 AM / 2 months ago

FOREX-Dollar sags after weak U.S. data, Turkey rate hike lifts emerging currencies

* Dollar index hovers near 2-1/2-week lows

* Emerging market currencies supported after Turkey’s big hike

* Yuan, Aussie await China data for near-term cues

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Shinichi Saoshiro

TOKYO, Sept 14 (Reuters) - The dollar sagged on Friday after weaker-than-expected U.S. inflation data further burdened a currency already weighed down by signs of reduced trade tensions between the United States and China.

Emerging currencies such as the South African rand and the Mexican peso held to gains after surging in relief after Turkey’s central bank implemented a large increase in interest rates.

The greenback took a hit overnight after the U.S. consumer price index (CPI), the government’s broadest inflation gauge, rose just 0.2 percent in August and less than the 0.3 percent projected by analysts in a Reuters poll.

The dollar also felt additional pressure as the euro gained after European Central Bank President Mario Draghi suggested on Thursday at a post-policy meeting news conference that low inflation was less of a worry.

“The dollar has sagged mainly due to the soft U.S. CPI. The euro’s bounce also weighed on the dollar, but Draghi’s views cannot be described as hawkish on the whole. There appears to have been some knee-jerk reaction to his comments on inflation,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The ECB kept policy unchanged as expected on Thursday, staying on track to end its bond purchases this year and raise interest rates next autumn.

The dollar’s index against a basket of six major currencies stood little changed at 94.563 after slipping 0.3 percent on Thursday, when it touched 94.428, its lowest since Aug. 31.

Safe-haven demand for the dollar eased this week on news that the White House had invited Chinese officials to restart trade talks. Beijing welcomed the invitation with the two countries now reported to be discussing the details.

The euro was steady at $1.1691 after gaining more than 0.5 percent overnight when it brushed a two-week high of $1.1701.

The Turkish lira was a shade weaker at 6.137 per dollar after ending the previous day on a gain of more than 4 percent.

The lira surged after Turkey’s central bank raised its benchmark one-week repo rate by 625 basis points to 24 percent on Thursday.

Following the lira’s rally, the South African rand gained 1.3 percent against the dollar on Thursday and the Mexican peso rose 1 percent.

China’s yuan stood little changed at 6.8452 in offshore trade. The yuan has gained nearly 0.4 percent on the week amid the ebb in U.S.-China trade concerns.

The Australian dollar, seen as a proxy of China-related trades as well as a barometer of risk sentiment, was flat at $0.7191.

The Aussie was headed for a 1.1 percent gain on the week, having pulled back from a 2-1/2-year low of $0.7085 plumbed on Tuesday.

For the yuan and Aussie, immediate focus was on China’s retail sales and industrial production data due later in the session.

The dollar was up 0.1 percent at 112.03 yen after rising to 112.08 yen, its highest since Aug. 1, with rising equities dimming the Japanese currency’s safe-have allure.

Reporting by Shinichi Saoshiro Editing by Eric Meijer

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