"Risk assets are navigating calmer waters this morning, as the reopening of Chinese markets after a four-day holiday saw the People's Bank of China pump extra liquidity into the banking system through reverse repurchase agreements," ING said in a note to clients.
"Also contributing to limiting losses in Chinese equities was the news that Evergrande has negotiated an interest payment for its 5.8% 2025 bond due tomorrow. As a consequence, U.S. stock futures are pointing at a positive open, and the FX market saw a dominance of risk-on moves with commodity currencies gaining against safe-havens this morning."
Investors are still nervous about the fate of Evergrande, which missed interest payments due on Monday to at least two of its largest bank creditors, Bloomberg reported.
The dollar index stood at 93.226 in early London trade, staying not far off Monday's one-month high of 93.455.
The euro hardly budged at $1.1725, having stabilised at a one-month low of $1.1700 on Monday.
Earlier, the common currency dropped to a seven-month low of 127.93 yen, as the safe-haven Japanese currency was supported by the cautious mood.
The Chinese yuan was fairly stable, firming slightly to 6.4748 per dollar in offshore trade, edging back from one-month low of 6.4878 set on Monday.
Another major focus for the day is the U.S. Federal Reserve, which is expected to drop more hints on its future policy path, including when to start tapering its bond buying and when to start raising interest rates.
There are rising expectations the central bank will signal plans to start reducing its massive bond purchases in November if incoming data holds up.
The so-called "dot plot", which charts policymakers economic and rates projections, could offer clues on when the Fed will hike interest rates from the current near zero level.
"Longer-dated U.S. Treasury yields continue to coil in a very constricted range and Fed expectations have been stuck in neutral for weeks, with neither budging notably on the recent market volatility in risky assets," said Steen Jakobsen, chief investment officer at Saxo Bank.
"This suggests little anticipation of a surprise at today’s FOMC meeting and keeps the bar rather low for a hawkish surprise scenario, as the Fed has been seen as unlikely to shift current expectations, with Fed Chair Powell’s dovish Jackson Hole speech on transitory inflation and a lower-than-expected August CPI data."
10-year U.S. Treasury yields traded at 1.3260%, within recent ranges.
Elsewhere, the Canadian dollar stood little changed, having pared gains made on Tuesday after Prime Minister Justin Trudeau's Liberals won a tightly-contested election.
Cryptocurrencies bounced back a tad after plunges in the previous session.
Bitcoin rose 5% to $42,754 after having hit a 1-1/2-month low of $39,573. Ether bounced 6% to $2,950, having fallen to as low as $2,732, down more than 30% from a four-month peak hit earlier this month.
The United States on Tuesday unveiled sanctions against a cryptocurrency exchange over its alleged role in enabling illegal payments from ransomware attacks.
(Reporting by Ritvik Carvalho; Editing by Catherine Evans) ((Ritvik.Carvalho@thomsonreuters.com; +44 2075429406; Reuters Messaging: email@example.com; Twitter @ritvikcarvalho))