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The
British pound, though, was an outperformer, boosted by
better-than-expected inflation data for July, including an
uptick in core inflation, which hit a five-month high. Sterling
rose to a seven-week high of $1.5717 after the data.
The inflation numbers bolstered expectations that the Bank of
England will raise interest rates in coming months and helped
sterling gain 0.9 percent against the euro.
Earlier, China's main Shanghai Composite and Shenzhen 300
indices both lost more than 6 percent <.SSEC> <.CSI300> as
investors bet that demand in China will cool further, weighing
on the trade-reliant region and throwing more doubts on a global
recovery.
The dollar fell 0.15 percent against the yen to trade at 124.25
yen <JPY=> while against the Swiss franc it was down 0.2 percent
at 0.9770 francs <CHF=>. The euro was also down 0.2 percent
against the franc at 1.0805 francs.
"There is a risk-off environment, given the drop in the Chinese
stock markets. Investors are cautious about whether the Fed will
raise rates, given a slowdown in China and global deflationary
conditions. All these are weighing on the dollar," said Petr
Krpata, FX strategist at ING.
Against a basket of major currencies, the dollar was flat on the
day, trading at 96.79 <.DXY>, having started the day on a firm
note. It was still holding above a one-month low of 95.926, set
last week when Beijing's surprise devaluation dented
expectations that the Fed will raise rates in September.
China's central bank has since tempered the yuan's slide,
soothing anxiety of a further sharp devaluation - a scenario
that markets feared could lead to a global currency war.
However, the latest slide in Chinese stocks has re-ignited fears
that Beijing may still be intent on a deeper devaluation.
Many still expect the Fed to move in September, though much
depends on the robustness of U.S. data and global stock markets
in the coming weeks.
"As long as China doesn't continue to aggressively devalue the
yuan, we will see it (a rate hike) in the next six months, and
the U.S. dollar will be stronger," said Jeffrey Halley, FX
trader for Saxo Capital Markets in Singapore.
(additional reporting by Masayuki Kitano; Editing by Kevin
Liffey)
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