Dollar Still worried about the Chinese Stock Performance

The Dollar is likely to weaken against the euro and yen on Wednesday as sentiment remains fragile even after China launched the easing of monetary policy. The dollar is currently trading at around 119.00 yen after reaching to the top level of 120 yen overnight after China's central bank cut interest rates for the second time in two months. The greenback traded above 125 yen level is less than 2 weeks ago, before the sentiment of risk aversion pushed investors to buy the yen and the euro, the currency used to fund investments risky assets also called 'carry trades'.

Investors will focus on how China's stock exchanges will react after the People's Bank of China (PBOC) cut interest rates by 25 basis points to 4.6%, and cut the minimum reserve requirement (reduced reserve requirements (RRR)) by 50 basis points to 18% for almost all major banks. The move, which is expected to be taken PBOC last weekend, was taken after a sharp decline in China's stock exchanges globally triggering a domino effect on the stock market and commodities.

According to analysts, the dollar rebounded slightly after the announcement of the PBOC, but how Shanghai stock market reaction to the policy which will determine the direction of movement of the dollar. The yen and the euro to a transition of the risks that resulted in a decrease in carry trades, the euro has built a negative correlation with the stock market, especially after the sharp decline in the Chinese stock exchange.