NEW YORK (MarketWatch) -- The Japanese yen retreated and traditionally high-yielding currencies rebounded Thursday following a modest revival in risk appetite a day after global central banks cut interest rates in an emergency coordinated move, analysts said.
The dollar, meanwhile, maintained a firm tone, even as U.S. stocks gave up early gains to trade lower.
The dollar index gained nearly 1% to trade at 81.311, partly in response to indications the U.S. Treasury will use provisions in the recently enacted $700 billion bailout bill to re-capitalize troubled banks.
"Currency markets may have been relatively muted in their immediate response to the coordinated rate cut yesterday but the longer term outlook remains dollar positive, presumably with traders being cheered by details of Paulson's next intervention plan to get U.S. banks lending to one another again," said James Hughes, an analyst at CMC Markets.
The yen, which had soared Wednesday as risk aversion surged, gave back some gains.
The dollar gained 1.6% against the Japanese unit to trade at 100.74. The dollar had plunged below the 99.00 level before trimming losses in Tuesday's trade.
The euro also rebounded, gaining 1.5% against the Japanese currency to 137.46 yen after having plumbed its lowest levels against the yen since 2006.
The dollar was mixed against other major currencies. The euro rose 0.1% against the greenback to $1.3649, while the pound gained 0.3% to $1.7226.
The Australian dollar, which had tumbled sharply on Tuesday as risk-averse traders piled into the yen, was up 5.9% vs. the dollar to 70 U.S. cents.
The Aussie rose 6% against the Japanese unit to 60.62 yen.
But strategists warned that ongoing uncertainty over the fate of the financial sector would likely maintain support for the yen, which has posted sharp gains during periods of mounting risk aversion.
That also spells trouble for traditionally high-yielding currencies, such as the Australian and New Zealand dollars, which once benefited from carry-trade strategies.
"Although the Australian dollar's massive losses can be seen as overdone, the currency will not be able to recover meaningfully so long as the market uncertainty remains acute; the same holds true" for the New Zealand dollar, said strategists at Commerzbank.
"Even if markets were tentatively to regain some confidence, possible rallies [by the Australian dollar versus the greenback] would be capped by US$0.7000," they said.
