The euro was seen on a bad note against the dollar as yuan-induced euphoria faded amid doubts over the overall impact of China’s pledge for a more flexible currency.
Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey said: “It’s basically inertia where the moves are not progressing and people have turned around and took it the other way. I would say the lack of follow-through after the China-fueled rally is leading to some risk aversion. I think people are concluding that the China news would be a minor thing primarily for diplomatic window-dressing. China is doing this ahead of the G20 meeting primarily to defuse the situation there and hope that the G20 talks about other things.”
The euro fell 0.6 percent against the dollar to $1.2313.The US dollar rose 0.4 percent against the yen to 90.99.
The dollar and yen rose seen on good note as investors, nervous about a fall in US stocks late in the day, sought a safe haven in US and Japanese bonds. Pound fell as investors reacted positively to UK Finance Minister George Osborne’s first budget.
Nick Bennenbroek, head of currency strategy at Wells Fargo in New York said: "There has been a rapid change in sentiment in the currency and equity markets, although the moves in forex don’t have that much conviction. The euro, Aussie, and other risk currencies are just moving in lock step with the equity market even though currency traders are not really focused on the issues driving stocks."
The euro slipped 0.2 percent against the dollar to $1.2276. Pound at $1.4812. The USD was down 0.7 percent versus the yen to 90.39.
The dollar was weak against the yen and euro rose as the Federal Reserve reiterated its pledge to keep interest rates low for an extended period and struck a cautious tone on the US economy. The Fed also softened its view on the US economy in its statement, noting pockets of weakness in certain sectors and warning against volatile financial markets given the euro zone debt crisis.
Pound was seen making gains after minutes from the Bank of England’s June meeting showed an unexpected split with Monetary Policy Committee member Andrew Sentance voting for a 25 basis point rate increase.
Michael Woolfolk, senior currency strategist at BNY Mellon in New York said: "It’s dovish. There’s no rate hike expected for the foreseeable future. The Fed is concerned about threats to growth, not threats to inflation. The longer the Fed keeps kicking the can down the road, the less positive this is for the U.S. dollar outlook."
The euro rose against the dollar to $1.2344. Against the yen, the dollar was at 89.73. Pound rose high against the dollar at $1.4975.