Turkish Central Bank Delivers Hammer

A dramatic move to raise rates from the Turkish central bank wiped out a near-term risk. USD/JPY jumped to 103.30 from 102.90 after the decision. Asia will have the first chance to digest the news and the calendar there is quiet.

Turmoil in emerging markets has been the key market driver in the past week but a sharp hike in Turkish interest rates could stem the fall of the lira and help stabilize broader markets. In a midnight emergency meeting Turkey's central bank hiked rates to 12% from 7.75%, sailing through expectations of a rise to 10%. In a surprise move, repo, borrowing and liquidity window rates were also raised much higher.

The yen fell and stock markets rose on the news. The euro also softened in a sign that Turkish safe haven flows may have marginally favored to euros.

As reported in the MNI bullet points, ECB sources cited by MNI said the central bank is content at present with current policy and that there is no sense of urgency to act on deflation worries.

The euro was upbeat in US trading after a durable good orders report that casts doubt on the strength of US investment. The key capital goods orders nondefense ex-air component fell 1.3% compared to a 0.3% rise expected. In addition, the previous reading was revised to +2.6% from 4.5%.

The refrain has been to blame soft December economic data on weather but snow and cold hardly prevent future orders. The softness could lead the Fed to rethink a $10 billion taper by scaling it to $5 billion or adding dovish guidance.

The developments in Turkey will give the Fed comfort, especially if the upbeat tone holds up into US trading on Wednesday.

In the hours ahead the focus will be on Asian stocks but Australia skilled vacancies are on the calendar at 0000 GMT. The prior reading was -0.1% m/m.