How long this currency shift with the yen and euro gaining on the dollar can be sustained remains open to question. With stocks resurgent on Tuesday after Chinese intervention in its markets with lower interest rates and reserve requirements for banks, the dollar regained its strength from a seven-month low it hit on Monday, and the greenback was ahead of a basket of 10 developed market currencies.
Heng Koon How, a senior FX strategist for private banking and wealth management in Singapore, said it is unlikely that Japanese and euro zone policymakers would be supportive of further rises in the euro and yen, since a stronger currency hurts their export economies. "I would expect verbal intervention to heat up, should euro head higher towards $1.20 [against the dollar] or dollar/yen trades on a sustained basis below 115."
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Not all of the G10 currencies have been gaining strength against the dollar. Currencies in commodities economies including Australian (AUD) and Canadian (CAD) dollars are still being hit hard, said Callum Henderson, global head of foreign exchange strategy at Standard Chartered in a CNBC appearance Monday.
And the euro and yen rally is at this point a short term-position reflecting the risk dynamics in the markets. He noted that the euro in particular has become a favorite in acting like a safe haven when markets sell off and investors exit risk assets, "but its capacity to stay that way remains in question," Henderson said.
On Tuesday, Japan's Financial Minister Aso said that despite the yen's recent rally, the Japanese government had no plans to create a new stimulus package. He stressed that Japan is still on the path to recovery as many Japanese companies have achieved record revenue.
"For the economy to grow stably, it's better for (currency and stock price) moves to be gradual and steady, rather than rough," Aso said.
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"This has happened at time when [economic] data is stalling so I would be surprised if we don't see some form of protest in the trade-weighted appreciation in the euro and yen over the next few weeks if not days, if it continues. But at the moment it is a short term phenomenon," Henderson said.
The emerging markets unwind process that began a year ago isn't likely over. If China continues to slow the investor exit from emerging markets will continue and that will keep pressure on their currencies. And even if the Fed decides to put the brakes on its interest rate hike in the immediate future, the broader global markets context favors all the safe haven currencies: the dollar, euro and yen.
—By Krysia Lenzo, special to CNBC.com