By Jemima Kelly
LONDON (Reuters) – The dollar rebounded from four-week lows against the yen on Thursday, as global markets regained some of their risk appetite after a sharp sell-off in stocks and the greenback – and heavy flows into safe-haven assets – over the past week.
With share prices rebounding across Asia and Europe and Wall Street also set to open higher, the dollar climbed around a third of a percent to 113.17 yen , up from lows of 112.47 yen on Wednesday plumbed as a risk-off mood took hold.
Against a basket of currencies, the greenback was 0.2 percent higher (DXY), having fallen to its lowest in almost four weeks on Wednesday – a severe correction from the uptrend that began in early September on hopes of a tax cut deal.
Investors say they do not expect any risk-off moves to be lasting, because of a robust growth backdrop.
“We do not currently expect risk-aversion to rise sustainably because global growth expectations are strong enough to compensate for adverse developments’ dampening impact on sentiment,” said Credit Agricole (PA:CAGR) currency strategist Manuel Oliveri, in London.
Rabobank currency strategist Jane Foley, also in London, said hawkish comments late on Wednesday from Boston Federal Reserve President Eric Rosengren, who said the Fed should continue to raise interest rates and should do so next month, had also helped the dollar.
But concerns over U.S. tax reform plans were keeping a lid on any dollar gains.
The Republican-controlled U.S. Congress was approaching a major test on Thursday of its ability to overhaul the federal tax code, as lawmakers prepared for their first full-scale vote on sweeping tax legislation.
“For the moment, the U.S. tax cuts will be the main theme of the markets. I would expect negotiation to drag on beyond the year-end but by the first quarter of next year, there will be a deal,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
With the dollar recovering, the euro slipped quarter of a percent to $1.1764 , having reached as high as $1.1862 on Wednesday, its best level in over one month.
The Australian dollar bounced from near five-month lows as a mostly upbeat local employment report triggered a round of short-covering.
The Aussie traded flat percent at $0.7584, having plumbed a low of $0.7567 , a trough last seen in late June.