On Wednesday, the U.S. dollar inched up and the Japanese yen dropped after the Bank of Japan tried to calm the markets by indicating there would be no more rate hikes while markets stayed volatile.
The U.S. dollar index, which measures its strength against 6 other major currencies, traded up 0.3% at 103.037, edging further away from the 7-month low hit on Monday.
On Wednesday, the dollar gained slightly, partly benefiting from yen weakness and amid some speculation that U.S. economic growth would not decline as drastically as the market has been fearing.
The U.S. dollar was hit hard by worries about a U.S. recession after a slew of soft labor market readings, which increased bets that the Fed would have to cut rates by more than initially anticipated.
Traders have however modified their expectations of Fed cuts as the week progressed, and the CME FedWatch tool showed that markets are now pricing in a chance of 70% that the Fed will cut rates by 0.5% in Sept., compared with a chance of 85% a day earlier.
Goldman Sachs analysts said although market stress was higher than a week ago their Financial Stress Index suggested that there have not been any serious market disruptions that would result in policymakers intervening.
