TOKYO (Reuters) - The dollar took a breather on Wednesday as easing crude oil prices sparked a glimmer of risk appetite in the markets ahead of a slate of key central bank decisions.
The yen remained shaky near levels that triggered concerns about Tokyo intervening in the markets ahead of Japanese Prime Minister Sanae Takaichi's meeting in Washington with President Donald Trump.
The euro edged lower after two days of gains, with the European Central Bank set to begin its two-day meeting.
The greenback has gained as the only remaining haven currency during the Middle East crisis that is now in its third week.
Oil prices fell slightly on Wednesday morning after sources, citing American Petroleum Institute figures, showed an increase in U.S. crude inventories.
"With the rise in crude oil prices appearing to pause for the moment, it's not as though conditions have improved dramatically, but for now, markets across the board seem to be recovering somewhat," said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corporation. "In the case of USD/JPY, you could say it has moved a bit in the direction of yen strength."
The dollar index , which measures the greenback against a basket of currencies, edged up 0.06% to 99.61 after a two-day decline. The euro was down 0.05% at $1.1532.
The yen weakened 0.01% against the greenback to 159.00 per dollar. Sterling held steady at $1.3355.
The dollar reached a 10-month high at the end of last week as the Middle East conflict and rising oil prices prompted investors to seek safety in U.S. assets.
In a sign of how the crisis is upending diplomacy and trade, Trump on Tuesday said he would postpone a trip to Beijing to meet with Chinese President Xi Jinping.
Japanese Premier Takaichi is due to depart for her meeting with Trump on Wednesday evening.
"Even if the conflict settles into a prolonged stalemate ... equities could rebound, supporting commodity currencies such as the Australian dollar, while also prompting a rebound in the currencies of oil-importing economies such as the yen and the euro," said Mizuho Securities chief FX strategist Masafumi Yamamoto and market analyst Masayoshi Mihara in a report.
"That said, we see limited downside from here in USD/JPY, partly because the Takaichi administration would likely favour a weaker yen."
The U.S. Federal Reserve will announce its policy decision on Wednesday, with the ECB, the Bank of England and the Bank of Japan following a day later.
They are all expected to keep rates unchanged, although traders will be looking out for commentary about inflation and economic outlook amid the U.S.-Israeli war on Iran.
Expectations for Federal Reserve easing have also been scaled back, with markets now assigning about 25 basis points of cuts this year. Traders are pricing more than one ECB rate hike in 2026, a sharp shift from the roughly 50% chance of a cut seen before the conflict began.
The Australian dollar strengthened 0.1% versus the greenback to $0.7109. New Zealand's kiwi strengthened 0.05% versus the greenback to $0.586.