Investing.com – The US dollar moved higher on Wednesday while the Japanese yen fell as the Bank of Japan tried to calm the troubled waters by no longer signaling rate hikes as markets remain volatile.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.3% higher at 103.037, further from Monday’s seven-month low .
The dollar is recovering after heavy losses
The dollar eked out a small gain on Wednesday, benefiting in part from yen weakness and amid some expectations that US economic growth will not deteriorate as dramatically as markets feared.
The dollar was hit hard by fears of a US recession after a series of weak labor market data, raising expectations that interest rates will have to be cut further than initially expected.
However, traders have adjusted their expectations for Fed cuts as this week has progressed, with markets now pricing in a 70% chance that the Fed will cut rates by 50 basis points in September, the CME FedWatch tool showed, compared to an 85% chance per day previously.
“Market stress is noticeably higher than a week ago,” Goldman Sachs analysts said in a note, but “our FSI [Financial Stress Index] suggests that there have been no serious market disruptions to date that would force policymakers to intervene.”
Euro, pound sterling in tight margins
In Europe, the dollar fell 0.1% to 1.0918, retreating further from Monday’s seven-month high of 1.1009 as the greenback rose.
rose 0.2% to 1.2708, still not far from the five-week low it reached in the previous session.
Data released earlier Wednesday showed the British economy grew more strongly in 2022 than previously thought.
The Office for National Statistics said on Wednesday it now believes the UK economy will grow by 4.8% in 2022, up from a previous estimate of 4.3%.
The yen falls sharply after downplaying the chances of rate hikes
In Asia, yields rose 2.2% to 147.47, with the yen falling sharply after Bank of Japan officials played down expectations of rate hikes.
BOJ Deputy Governor Shinichi Uchida said the bank will not raise rates if markets are unstable – comments that follow volatile moves in the Japanese currency.
Still, the yen remained well above the 38-year low reached this year, and more support is expected to come as Japan’s economy improves on higher wage growth.
rose 0.4% to 7.1862, with the yuan narrowing losses on mixed trading data.
China’s shrank much more than expected in July, undermined by disappointing figures after the European Union imposed steep import tariffs on Chinese electric vehicles earlier in July.
But the Chinese exceeded expectations, fueling some bets on a recovery in local demand.
The focus now is on Chinese data due later this week.
