LONDON: The dollar recovered a third of a percent in value against other major currencies on Thursday after recording its steepest daily fall against the euro in well over a year in the previous session.
A day of carnage on markets on Wednesday was marked by a return of the concerns over Greece which have haunted Europe for five years and some much poorer than expected US data, all adding to worries over global growth.
The euro zone, facing the threat of a cycle of very low growth and deflation, is a major concern for investors and inflation there will provide the first focus on Thursday. But it is a pull back in expectations of US interest rate rises which has driven the biggest moves this week, and another batch of US numbers later in the day and a handful of appearances by Fed speakers may provide more fuel on that front.
The dollar was 0.3 percent stronger against the euro and yen in early European deals at $1.2789 and 106.24 yen respectively.
"The overall flows should still be in favour of the dollar," said Ian Stannard, a strategist with Morgan Stanley in London.
"We will get these shifts in the cyclical economic outlook, like the adjustment in rate expectations we have seen this week. But I think the trend (higher) in the dollar is becoming asset-led and is more structural."
That reflects the view of many banks, particularly prevalent over the past month, that the US currency's move higher since July is finally the start of a longer-term shift in global exchange rates.
A number have forecast it gaining another 20 percent or more against the euro over the next two years, driven by the divergence of economic fortunes, and as a result interest rates, on either side of the Atlantic.
But Federal Reserve policymakers have already voiced some concern about its gains and with doubts growing about the broader economic outlook, any further dollar rise may prompt the Fed to hold off with raising rates long into next year.
WALL STREET FALL
Worries about growth as the Fed reaches the end of its third emergency stimulus programme dealt Wall Street a fresh blow overnight, sending the S&P 500 down by as much as 4.4 percent at one point.
Safe-haven US Treasuries rallied in response, driving short-term returns on dollars lower.
"There are those out there buying the dollar on dips, but it is difficult for them to commit themselves unless US equities first recover and stop the decline in Treasury yields," said Junichi Ishikawa, a market strategist at IG Securities.
"There was a fair number of long positions on the dollar that had built up and the recent volatility has provided a good opportunity for fast money accounts to clear out their positions before their books close in November," he said.
A slide in Tokyo stocks to a 4-1/2 month low also boosted demand for the safe-haven yen in a relatively quiet Asian session.
The greenback has come hurtling down from a six-year high of 110.09 yen hit at the start of the month, when expectations of an early rate hike by the Federal Reserve were significantly stronger and the market's view on the US economy far rosier.
The euro recovered a footing against the yen, a touch higher at 135.75 yen after hitting an 11-month low of 135.04 overnight. The dollar index was down less than 0.1 percent at 85.096 after slipping to a three-week low of 84.472 overnight.
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