The dollar pared gains as US stock markets erased advances after China cut interest rates following Monday’s global equity wipeout.
Some of the dollar’s biggest gains came against the Swiss franc, the euro and the yen, all currencies that investors consider havens in times of market turmoil.
Japan’s currency weakened after a Ministry of Finance official said its rally to a seven-month high Monday had been “abrupt.”
“What we’re seeing is a mirror image of yesterday’s moves,” said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington.
The dollar trimmed earlier gains, rising 0.5% to 118.98 yen last night in New York, after slumping to 116.18 on Monday, the weakest since Jan. 16.
The greenback rose 1.1% to $1.1488 per euro, bouncing back after Europe’s single currency gained 5.4% in the previous four days, the most since March 2009.
China’s central bank cut its benchmark lending rate for the fifth time since November and lowered the amount of cash banks must set aside, stepping up efforts to cushion the stock-market slide and a deepening economic slowdown.
“China has showed that they will continue to use policy interventions to put a floor under their equity market, probably a floor under their currency, and that means that we’re not going to have a global meltdown,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said.
Traders have increased the probability of the Fed raising rates at its September meeting to 28%, rebounding from as low as 20% on Monday.
The calculation is based on the assumption that the effective fed funds rate will average 0.375% after the first increase.
Currencies in developing nations and those reliant on exporting commodities to China also rallied.
Australia’s dollar rose the most in two weeks after sliding Monday to a six-year low.
South Africa’s rand and Mexico’s peso rebounded from records, while Russia’s ruble surged 3.1%.
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