Investing.com - The dollar was lower against the yen and a basket of other major currencies on Wednesday as concerns over the prospect of political instability in Greece and worries over China fuelled risk aversion.
USD/JPY was down 0.89% to 118.60, off the seven year peaks of 121.81 struck on Monday.
The dollar was broadly lower, following a steep selloff in the previous session, sparked by fears over risk from political instability in Greece and new restrictions on China’s debt markets, which bolstered demand for the traditional safe haven yen.
Market sentiment was hit after a surprise decision by the Greek government to bring forward a parliamentary vote for president to next week from February.
Markets were spooked by the risk of snap elections which could take place if Prime Minister Antonis Samaras’ candidate is not approved by parliament, which could see the anti-bailout Syriza party take power.
Jitters over the outlook for China’s economy also weighed after a Chinese government decision on Tuesday to set new restrictions on collateral for short-term loans. The move fuelled fears that the world’s second-largest economy is slowing at a faster rate than anticipated.
Demand for the dollar looked likely to remain supported by the diverging monetary policy stance between the Federal Reserve and central banks in Japan and Europe.
Last week’s strong U.S. jobs report for November prompted investors to bring forward expectations for the first hike in interest rates to mid-2015 from September 2015 ahead of the data.
Investors were looking ahead to next week’s policy statement from the Fed amid speculation that policymakers could drop an assurance that interest rates will stay low for a "considerable time".
EUR/USD was up 0.36% to 1.2385, reversing the single currency’s drop to a two-year trough of 1.2246 on Monday.
The dollar was also weaker against the pound and the Swiss franc, with GBP/USD rising 0.21% to 1.5700 and USD/CHF down to 0.9682.
The commodity exposed currencies moved higher, with AUD/USD up 0.25% to 0.8315 after falling to four year lows of 0.8224 earlier in the week. NZD/USD was up 0.61% to 0.7723, while USD/CAD gained 0.28% to trade at 1.1478.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, was down 0.40% to 88.38. On Monday the index rose to a five year high of 89.53.