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By Peter Nurse – The dollar edged higher in early European trade Thursday, helped by the Federal Reserve offering few clues that it intends to take a more dovish approach to help the U.S. economic recovery in the near future.

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 93.067. USD/JPY was flat at 106.11, GBP/USD dropped 0.2% to 1.3072 while EUR/USD was flat at 1.1841.

The path to economic recovery for the U.S. economy from the Covid-19 outbreak remains highly uncertain, the Federal Reserve warned, according to minutes from its latest meeting, released on Wednesday.

However, the Fed did not appear to be prepared to change its monetary policy objectives at the forthcoming September meeting, suggesting that the introduction of yield curve controls or average inflation targets are still some way away.

Speculation has been rife the Fed will adopt an average inflation target, and seek to push inflation above 2% to make up for years it has run below, as part of a broader policy review.

In the emerging markets sphere, Turkey’s central bank is scheduled to meet later Thursday, with most analysts expecting it to leave its benchmark one-week repo interest rate unchanged at 8.25%.

The Turkish lira has fallen to record lows against the U.S. dollar in recent times on concerns that low interest rates, depleting FX reserves and a flood of easy credit could pave the way to a second currency crisis in as many years.

President Recep Tayyip Erdogan has repeatedly called for lower borrowing costs, putting pressure on policy makers led by Governor Murat Uysal not to raise interest rates to support the currency.

The central bank’s approach is now effectively to tweak the cost of funding on a daily basis, varying the amount of liquidity available to lenders. 

Turkey’s central bank “will likely attempt more backdoor tightening before eventually being forced to hike rates outright later this year,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., in a Bloomberg report.

At 3:00 AM ET, USD/TRY traded 0.3% higher at 7.3094.

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