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Dollar falls as risk appetite fades, Bank of Canada stands pat

Should investors chase the dollar/yen higher?

The dollar fell on Wednesday as risk appetite receded after big moves earlier in the week and following the announcement from the Bank of Canada that it would hold interest rates steady, a decision that may provide clues about future central bank action.

The fell against the low-yielding euro and traditionally safe-haven Swiss franc and Japanese yen, which recorded its biggest two-day loss against the dollar in almost two years on Monday and Tuesday, as risky assets took a breather, analysts said.

"That has allowed the yen, which has been sold heavily over the past few days, to stabilize," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Japan's Abe orders new stimulus after election win

Since the start of the week, the had tumbled 4 percent against the dollar - its worst performance since November 2014 - after Japanese Prime Minister Shinzo Abe's ruling coalition won a clear victory in upper house elections, fueling expectations of more fiscal stimulus measures.

The dollar fell 0.45 percent against the yen on Wednesday to 104.37 yen. It hit a global session low overnight of 103.95 yen shortly after Chief Cabinet Secretary Yoshihide Suga said Japan was not considering "helicopter money," a policy in which governments give money directly to citizens to stimulate the economy.

Against the Swiss franc, the dollar fell 0.58 percent to 0.98 franc. The euro rose 0.40 percent against the dollar to $1.11.

Analysts had widely expected policymakers to keep Canada's overnight interest rate steady at 0.5 percent, but the statement from BOC officials sounded a hopeful tone about the state of its domestic economy, while still warning of possible fallout from Britain's decision to leave the European Union.

"On the one hand, the market was hoping the bank would sound more concern and maybe crack the door to looser policy north of the border," Manimbo said. "But on the other hand, Canada's expectations for things to turn around from the third quarter is a positive for the Canadian dollar and other commodity plays."

Should investors chase the dollar/yen higher?

The U.S. dollar fell by as much as 0.7 percent against its Canadian counterpart, touching a session low of C$1.2940 after the decision. It was last down 0.68 percent at C$1.30.

Sterling fell 0.90 percent in choppy trade against the dollar to $1.32, after rising nearly 2 percent on Tuesday.

The dollar index, which measures the dollar against a basket of major currencies, was down 0.25 percent to 96.21.