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The US dollar traded close to a three-week high on Wednesday after the Bank of Japan (BOJ) left its ultra-easy monetary policy untouched, raising risk appetite and dragging the yen down.

The US dollar index, a measure of its strength against a basket of six major currencies, gained 0.07 percent to $96.028, staying near its three-week high of 96.484 hit in the previous session.

The safe-haven yen weakened against its peers, with dollar-yen pair climbing 0.2 percent to 109.67, while the Japanese currency dropped 0.5 percent to 78.33 against the Australian dollar.

Against the euro, the yen also shrank 0.2 percent to 124.53.

Coming to Terms with a Range of Issues

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Currency markets have whipsawed in recent weeks as investors absorbed a number of issues from Brexit to decelerating word economic growth and the outlook for major central banks.

Overnight, the BOJ kept its policy unchanged at -0.1 percent as widely expected, and cut its core consumer inflation to 0.9 percent in the fiscal year starting in April from 1.4 percent.

Data from the Ministry of Finance (MOF) showed on Wednesday that Japan’s exports in December declined 3.8 percent from 2017, its biggest year-on-year fall since October 2016 and higher than the 1.9 percent slump estimated by economists.

That underlined the need for continued support for the trade-reliant economy.

Focus will now shift to the European Central Bank (ECB), which is set to meet on Thursday, and markets are expecting it to acknowledge risks to the eurozone economy.

Currency analyst Lee Hardman stated that the ECB will likely join its global peers in striking a cautious view on growth and that should keep the dollar supported, especially with bearish expectations on the greenback such as a consensus trade.  

The International Monetary IMF on Monday downgraded its 2019 and 2020 global expansion forecasts to 3.5 percent and 3.6 percent respectively.

The revisions came as the fund saw further weakening in the global economy due to the larger-than-anticipated contraction in China and the eurozone as well as the said failure to resolve trade tensions.

Growth in the world’s second-biggest economy last year hit a 28-year low and is on track to contract further this year before stimulus measures begin to take effect.

Investors are expecting progress in the US-China trade talks, with financial markets and demand worldwide already feeling the impact of the tariff dispute.

Risk sentiment fell overnight after it was reported that US President Donald Trump’s administration turned down an offer by two Chinese vice-ministers to visit Washington this week for preparatory trade discussions, but it was later denied by an advisor of the White House.

Meanwhile, the euro fell 0.4 percent to 1.1353 against the dollar on Wednesday, while the British pound advanced 0.1 percent to 1.2978 against the greenback.

The sterling was up 0.5 percent against the dollar on Tuesday after data showed UK’s pay growth climbed 3.4 percent to mark its highest since mid-2008 despite an economic slowdown ahead of the looming deadline for Brexit on March 29.

Traders are hoping for an orderly exit from the European Union (EU).

Since British Prime Minister Theresa May’s Brexit plan was voted down by larger-than-expected margin last week, policy makers have been looking for a way out of the crisis, yet no option has received majority approval of the parliament.

Managing director of currency strategy Kathy Lien stated that the market is now completely discounting the prospect of a hard Brexit, though the political risk still remains in play and volatility is sure to ratchet higher if no clear path is visible to the market.

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