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The dollar and the euro softened in Asian trade Wednesday but avoided a heavy sell-off after lawmakers in Cyprus rejected a bank deposit levy that was integral to a financial rescue for the country.
The dollar hovered around 95.06 yen in the early afternoon, compared with 95.23 yen in New York Tuesday.
The euro was $1.2873 and 122.39 yen, compared with $1.2881 and 122.59 yen.
While traders were initially spooked by the news the plan to tax savings by up to 9.9 percent had been kicked out, they took heart as European leaders said they were willing to work with Nicosia to help it avoid bankruptcy.
Agreement to the tax, which would have raised 5.8 billion euros, was imperative to international creditors releasing a further 10 billion euros to help the country pay its bills.
With that now in doubt Cyprus must now find other ways to raise cash to repay its debts and Cypriot President Nicos Anastasiades has called an emergency meeting of party leaders Wednesday to find a viable alternative.
However, while Tuesday's events raised the chances of the country leaving the eurozone, analysts said they soothed fears that such levies could be introduced in other troubled eurozone countries, which could have hammered confidence in the region.
Dutch Finance Minister Jeroen Dijsselbloem said in a statement: "I confirm that the Eurogroup (of finance ministers) stands ready to assist Cyprus in its reform efforts" given Monday when it offered easier bank levy terms to reduce the impact on smaller savers.
And the European Central Bank also said it would continue to provide financial support for troubled Cypriot banks, a key step to allow all sides a little more time to try to find a way out of the impasse.
Stephen Wood, chief market strategist at Russell Investments, told Dow Jones Newswires: "We're watching very closely, but at present we don't think Cyprus is a game-changer in Europe.
But other analysts were remained wary.
"The Cyprus issue is far from over," said Stan Shamu, market strategist at IG Markets in Melbourne. "I don't think it will be a situation where the ECB has stepped in and we don't have to worry about it."
Investors are also awaiting the end of a two-day US Federal Reserve meeting for clues to the state of the world's top economy, while the bank's Chairman Ben Bernanke will also address the media.
There are some expectations for a slightly improved view of the US economy.