FOREX-Euro falls to July 2020 lows as Germany's business morale darkens

Germany registered almost 67,000 new coronavirus infections. In the meantime, the beaten-down Turkish lira eased after hitting an all-time low of 13.45 versus the U.S. dollar on Tuesday when it fell around 15% on the day after Erdogan defended recent rate cuts.

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 surging inflation.

German business sentiment worsened for a fifth month as supply challenges in manufacturing and a spike in coronavirus infections clouded the growth outlook for Europe's largest economy, according to the Ifo institute. At 1145 GMT, the euro was down 0.3% at $1.1216, close to its lowest level of $1.1203 since early July 2020 touched in earlier London trading.

One-month implied euro volatility rose to the highest level since January. "Sliding business expectations as COVID cases risk increasing levels of German restrictions favors ongoing EUR downside," said Jeremy Stretch, head of G10 FX strategy at CIBC, adding that the euro could fall to as low as $1.1190.

Analysts said the euro could weaken further if Germany implements new COVID-19 restrictions after neighboring Austria reimposed a full lockdown. Chancellor Angela Merkel, who is preparing to hand over to a new government of Social Democrats, Greens, and Free Democrats, called in the leaders of these parties on Tuesday to discuss the pandemic. Germany registered almost 67,000 new coronavirus infections.

In the meantime, the beaten-down Turkish lira eased after hitting an all-time low of 13.45 versus the U.S. dollar on Tuesday when it fell around 15% on the day after Erdogan defended recent rate cuts. It last traded up 4.1% against the dollar at 12.15. There is widespread criticism from those calling for action to reverse the slide in the currency, which has hit 11 consecutive sessions of record lows.

"Given the high inflation of over 20%, this approach (lowering rates) is somewhat unorthodox," said Moritz Paysen, FX trader at Berenberg. The U.S. dollar continued its upward trend on renewed bets the Federal Reserve will hike rates to tame inflation.

The index rose 0.2% to 96.680 after touching a fresh 16-month high at 96.758 ahead of minutes of the November Federal Reserve Open Market Committee (FOMC) meeting and after a surge that followed the renomination of Fed chair Jerome Powell. The dollar has climbed versus the yen to levels not seen since 2017, hitting 115.23 overnight.

"It will be interesting to gauge how much divergence of views there was between hawks and doves," ING told clients, even if the FOMC minutes will be outdated as it took place before data showed U.S. inflation surged, providing a strong argument in favour of faster tapering and earlier tightening, ING said. 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 last down 0.65% to $0.6908 after a smaller than expected rate hike by the Reserve Bank of New Zealand.

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