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Dollar rebounds on US data, drop in 'currency war' anxiety

John Phillips | Digital Editor | CNBC

The U.S. dollar gained back some ground on Thursday after China's central bank said there was no basis for further depreciation of the yuan, refocusing attention on the likelihood of a Federal Reserve interest rate increase in September.

After falling to roughly a one-month low on Wednesday, the U.S. dollar rose against a basket of major currencies as the yuan's decline slowed, easing worries that China's decision to devalue its currency was a deliberate attempt to gain a competitive advantage.

The People's Bank of China (PBOC) also said it would step in to stabilize prices. The statements helped alleviate concerns of a currency war.

"With the suggestion that the PBOC's currency adjustment is mostly complete at this point right now, one has to think that a September Fed hike is still on the table," said Mazen Issa, senior currency strategist at TD Securities in New York.

The PBOC has said it would now take more notice of market forces when calculating the daily yuan fix, including the closing price in the previous day's trading session. Coming after a run of weak data, many had believed the yuan move was motivated by desire to boost exports.

Data showing that retail sales rebounded in July, while June sales were revised higher, boosted the dollar temporarily. The dollar pared gains after traders took profits, Issa of TD said.

Read MoreChina intervenes to support yuan: Report

The spot yuan weakened about 0.2 percent on the day to 6.3990 per dollar after dropping to roughly a four-year low of 6.4510 on Wednesday. The yuan was also down about 0.2 percent in international trade at 6.4593 per dollar.

The euro dipped against the dollar on the reduced concerns about China. Investors had been buying back the euro and getting out of carry trades in the yuan earlier this week, helping drive the euro to a more than one-month high of $1.12150 on Wednesday.

"China will continue to calm down," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. "The sell-off in the dollar as a derivative of that I think will go away."

The euro was last down slightly against the dollar at $1.1153. The dollar was last up 0.15 percent against the yen at 124.44 yen.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.12 percent at 96.38. The dollar was last up 0.1 percent against the Swiss franc at 0.9763 franc.

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