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The dollar was steady against a basket of currencies on Thursday after spooked investors drove US stocks to their worst fall in nearly eight months overnight.
The dollar index, a gauge of its value against six major currencies, fell 0.11 per cent to 95.407 on Thursday, after hitting a high of 95.79 in the previous session.
The safe-haven yen strengthened to 112.25 against the dollar, its highest this month, taking heart from risk aversion in the wake of warnings from the IMF over global growth and financial stability.
The US Federal Reserve's apparent determination to raise interest rates over the next 12 months has driven up US Treasury yields, which have been further bolstered by good economic data. “We expect rising inflation to keep the Fed hiking interest rates at its current once-a-quarter pace until the middle of 2019,” Capital Economics said in a note.
Expectations of hawkish rate rises may have been at work on Wednesday when sellers sent the Nasdaq to close at 7044.49, its lowest level since early July. The S&P 500 and Dow Jones Industrial Average werent too far behind, both falling more than 3 per cent. Benchmark 10-year yields cooled off from a seven-year high of 3.261 per cent hit on Tuesday to 3.1667 per cent.
The euro rose 0.16 per cent to 1.1536 on Thursday after hitting a low of 1.1477 in the previous session. EU Brexit negotiator Michel Barnier said on Wednesday the parties had agreed on much of the withdrawal agreement ahead of a summit of the bloc's 28 national leaders next week.
But the euro's gains are likely to be limited with markets worried about the sustainability of Italy's public finances, despite Italian Economy Minister Giovanni Tria stating that the government would do everything in its power to regain the confidence of financial markets.
Sterling traded at $1.3207, its highest in a week, as investors bet on a reasonably British departure from EU in March. The pound has gained more than 2 per cent versus the dollar over the last five trading sessions.
The Australian dollar, often viewed as a gauge of global risk appetite, traded flat at 0.7068 on Thursday. The New Zealand's dollar, or kiwi, traded at 0.6454, near a multiyear low of 0.6422 seen on Monday.
“Traders will be focussing on the risk-sensitive pairs as we move through the days trading with the Aussie and kiwi in sharp focus as they are sitting at range extremes,” said Nick Twidale of Rakuten Securities. Gold was flat at $1,194, holding below the psychological $1,200 level.
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