The US dollar recovered some ground against the euro and other major currencies on Wednesday, after the dollar's year long slide looked to have resumed this week. Rising stock prices and an Australian interest rate rise on Tuesday encouraged more diversification into higher yielding currencies, but the selling lost momentum on Wednesday, with Russian buying of dollars helping to slow the rouble's advance, traders said.
"There was a knee-jerk reaction on Tuesday after the surprise RBA rate hike in Australia. It fuelled general optimism that risk appetite is improving," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston. "We're now seeing a bit of a pullback in the move and the dollar is recovering a little bit." Policy meetings by the European Central Bank and the Bank of England are due on Thursday, though neither central bank is expected to raise interest rates, but may offer hints on the timing of an end to quantitative easing.
The ICE Futures US dollar index, which tracks the greenback against a basket of six major currencies, firmed 0.1 percent at 76.443, holding above a 13-month low of 75.827 hit last month. The yen remained firm despite comments by new Japanese finance minister Fujii that intervention was still a possibility. But markets took his comments as a sign that the yen's trading level is not yet a worry for Japan.
Comments from the new minister have been in the spotlight in recent weeks as traders try to assess the likelihood the government will intervene in the currency market. There is a fairly low probability the Bank of Japan will intervene in the foreign exchange market in the very near term because the yen is seen weakening against the dollar over the coming year, a Reuters poll showed on Wednesday.
In late day trading, the US dollar was off 0.1 percent at 88.64 yen, after earlier trading as low as 88.01 yen, according to electronic trading platform EBS, its lowest level since late January. The yen's inability to appreciate beyond 88 yen per dollar, where margin calls and options barriers lurk, prompted a recovery in the US currency, traders said.
A sustained fall below that level could take the dollar down to 87.10 yen. The dollar fell to this level in January for the first time since mid-1995. The euro fell 0.3 percent to $1.4678. In other trading, the Australian dollar rose to US $0.8951, its highest since early August 2008, before retreating to trade 0.1 percent lower at US $0.8900.