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Dollar under pressure on China equity rout concerns

american dollarThe dollar recovered slightly against the yen Tuesday, although gains were limited as investors remain on edge after a sharp plunge in Chinese markets hit risk sentiment, but the euro was supported by upbeat German data.

In Tokyo, the greenback fetched 123.55 yen, up from 123.24 yen in New York late Monday. although it is still off the 123.75 yen earlier in Asia.

The euro changed hands at $1.1076 and 136.79 yen, against $1.1091 and 136.69 yen in US trade, where it rallied thanks to a rise in German business confidence and signs of a pickup in lending in Europe.

Global markets were jolted Monday after Shanghai stocks plunged 8.48 percent — the steepest fall in eight years — as data showing more weakness in the Chinese economy mixed with fears government support measures for the mainland market will not last.

The losses continued Tuesday, with Shanghai losing five percent at one point, despite renewed government vows to boost buying, before ending the morning one percent lower.

The collapse followed almost three weeks of relative calm after Beijing unveiled a series of measures to put an end to a month-long rout that saw Shanghai slump more than 30 percent.

“Yen-buying sentiment was strong as players were trying to avoid risk as the Chinese market slumped,” said Minori Uchida, head of Tokyo global markets research at Bank of Tokyo-Mitsubishi UFJ.

The yen is considered a safe investment in times of uncertainty.

However, the dollar ticked up as the morning progressed and Chinese shares pared losses.

Traders are awaiting the Federal Reserve’s two-day policy meeting that starts later Tuesday.

While the central bank is not expected to raise interest rates, dealers are hoping for some forward guidance, with most analysts tipping a hike in either September or December.

“Players remain cautious ahead of the Fed meeting — they want to see its statement before taking positions,” Uchida said.

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