US dollar falls vs safe havens as risk appetite fades

[NEW YORK] The US dollar fell on Wednesday as risk appetite receded after big moves earlier in the week and following the Bank of Canada's decision to hold interest rates steady, which may provide clues about future central bank action.

The US dollar slipped against the low-yielding euro and traditionally safe-haven Swiss franc and Japanese yen, which recorded its biggest two-day loss against the US dollar in nearly two years on Monday and Tuesday.

Since the start of the week, the yen had tumbled 4 per cent against the US dollar - its worst performance since November 2014 - after Japanese Prime Minister Shinzo Abe's ruling coalition won a clear victory in upper house elections, fuelling expectations of more fiscal stimulus measures.

The US dollar fell 0.3 per cent against the yen on Wednesday to 104.39 yen. It hit a session low overnight of 103.95 yen shortly after Chief Cabinet Secretary Yoshihide Suga said Japan was not considering "helicopter money", a policy in which governments give money directly to citizens to stimulate the economy.

"In the last three weeks there's been a lot of volatility in the currency markets for obvious reasons," said Minh Trang, senior FX trader at SVB, in reference to the fallout from Britain's vote to leave the European Union.

"Now you're getting a little bit more stability."

Wednesday's price action also moved the British pound lower against the greenback after rising nearly 2 per cent on Tuesday.

Sterling fell 0.7 per cent against the US dollar to US$1.3149.

Against the Swiss franc, the US dollar fell 0.55 per cent to 0.9833 franc. The euro rose 0.4 per cent against the US dollar to US$1.1100.

The US dollar index, which measures the US dollar against a basket of major currencies, was down 0.2 per cent at 96.250.

Analysts had widely expected policymakers to keep Canada's main policy rate steady at 0.5 per cent, but officials sounded a more hopeful-than-expected tone about the outlook for domestic growth, while still warning of possible fallout from events like the Brexit vote.

The Canadian dollar hit its strongest level since July 7 against its US counterpart, as some traders unwound already low bets that the Canadian central bank could cut rates this year.

Eyes will now turn to the Bank of England, which is largely expected to ease monetary policy at its meeting Thursday.

REUTERS