The dollar held above a one-month low against a basket of currencies on Thursday as the yuan's fall slowed, easing worries that China was trying to sharply devalue its currency to gain competitive advantage. The yuan weakened slightly but the pace of its decline dipped as China's central bank said there was no basis for further depreciation in the yuan, given China's strong economic fundamentals.
Banking sources said the People's Bank of China had stepped up its intervention in yuan trading bid to stabilise exchange rates. "There is a degree of calm returning to the market," said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore. "The market certainly perceives that the Chinese authorities don't want the CNY (yuan) to weaken too dramatically."
The dollar edged up about 0.2 percent against a basket of major currencies to 96.430, inching away from a one-month low of 95.926 set on Wednesday. Improving risk sentiment and a rise in US Treasury yields on Thursday as share prices firmed supported the greenback. Against the safe-haven yen, the dollar rose 0.2 percent to 124.43, although it remained below a two-month high of 125.28 yen set on Wednesday.
"If risk-off type of trading recedes that should help support the dollar against the yen," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. The euro slipped 0.1 percent to $1.1147, having backed off from a one-month high of $1.1215 set on Wednesday. Some market players say the euro has been supported this week due to the unwinding of euro-funded carry trades.
Growing uncertainty over whether the US Federal Reserve will raise interest rates in September has also helped to support the euro versus the dollar. Such doubts had increased after China's surprise devaluation on Tuesday stirred worries about the health of the Chinese economy and triggered falls in risky assets such as equities and commodities. The Australian dollar, which is often used as liquid proxy for China plays, held steady at $0.7382, having recovered from a six-year low of $0.7217 set on Wednesday.