The dollar strengthened slightly on Wednesday, clawing back some of the losses stemming from renewed forecasts of interest rate cuts by the Federal Reserve this year, while the yen weakened for a third day, leaving investors wary of the risk of intervention from the Japanese government.
In Europe, the Swedish currency came under pressure after the central bank cut interest rates and said it expected two more cuts this year, while the pound slipped into negative territory ahead of the Bank of England meeting.
The yen remained a key focus for currency traders, weakening for a third day and prompting Japanese officials to issue stronger warnings about the impact of a weak currency on the economy.
Traders believe that Japanese authorities spent about $60 billion last week to prop up the yen after it hit a 34-year low against the US dollar at 160 yen.
Analysts say any intervention from Tokyo will only provide temporary relief for the yen, given the gap between interest rates in the US and Japan.
"If we see a sharp increase in the dollar/yen pair, I would probably think that there is intervention in the market to support the yen currency. But if we have a gradual increase, I doubt they will intervene, but there are certainly risks," said Carol Kong, currency strategist at the Commonwealth Bank of Australia.
Investors are currently focused on rates and interest rate cuts by the Fed which will most likely affect currency markets. Recent data showing weaker-than-expected US job creation, along with a rate cut trend from the US central bank, have reinforced expectations that rates are likely to be lower towards the end of the year.
The dollar eventually strengthened 0.12% to 105.48 against a basket of currencies. Meanwhile, central banks in Europe have started cutting interest rates. The Swiss National Bank cut in March ahead of Sweden's Riksbank's move on Wednesday.
The European Central Bank has indicated its intention to cut rates in June, provided data points in the right direction, and the BoE is gradually finessing its way towards its first rate cut. The euro remained steady at $1.0752. Against the Swedish currency, the euro strengthened 0.2% to 11,709 krona. Sterling slipped 0.1% to $1.24995.
In the cryptocurrency market, the price of bitcoin fell 0.27% to $62,260, on track for its fourth daily loss.
