By Kevin Buckland

TOKYO (Reuters) – The safe-haven dollar drifted lower in Asia on Wednesday as gains for European equity futures pointed to improved risk appetite despite fresh signs of the Chinese economy’s struggles.

Dollar selling by state-owned Chinese banks helped the yuan rally off a one-month low even as the country slipped into deflation, dealers said. The Chinese central bank’s stronger-than-expected exchange-rate fixing at 7.1588 per dollar before the open signalled its discomfort with the yuan’s recent declines.

That also supported the Australian and New Zealand dollars, which climbed off multi-month lows.

The U.S. dollar index – which measures the currency against the euro, sterling, and four other counterparts – eased 0.15% to 102.37 in the Asian afternoon, paring some of its 0.47% rise from the previous session.

The euro added 0.2% to $1.09745, while sterling gained 0.14% to $1.2766.

Pan-European EURO STOXX 50 futures pointed to a 0.9% rise, following a more than 1% tumble on Tuesday as bank shares sold off after Italy unexpectedly announced a 40% windfall tax on banks. Italy’s finance ministry issued guidelines late Tuesday that capped the tax at 0.1% of total assets.

The dollar eased even as China’s economy offered fresh reasons for worry about global growth, as data showed consumer prices fell for the first time in more than two years in July.

“There’s still no signs yet from officialdom of imminent support” for the Chinese economy, despite the “protest of sorts against the recent run-up in the dollar-yuan rate” implicit in the strong yuan fixing, said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.

As a result, the dollar index will stay “pretty well supported” above 102, although 103 is the likely near-term ceiling, Attrill said.

The Aussie added 0.13% to $0.6553, after dipping on Tuesday to the lowest since June 1 at $0.6497.

New Zealand’s kiwi rose 0.16% to $0.6074, rebounding from the previous session’s two-month low of $0.6035.

U.S. inflation data is due Thursday and looms large over a market hungry for clues on the path for Federal Reserve policy.

There were more dovish signals from Fed officials overnight, with Philadelphia Fed President Patrick Harker suggesting interest rates are high enough already, echoing the view of Atlanta Fed President Raphael Bostic.

The message has been far from uniform though, with Fed Governor Michelle Bowman saying on Monday that further hikes are likely.

“We’re starting to get trickles of more dovish commentary from Fed officials, and you start to think, okay, the thinking is really starting to shift,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank and Trust.

“I don’t know if it’s a turning point, but it really throws a wrench into the next meeting.”

Money market traders still heavily favour a quarter point rate increase at the next policy meeting in September, laying odds of 86.5%.

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