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Dollar rises as markets ride volatility

The dollar rose against other major currencies Wednesday as global equity markets faced renewed volatility driven by concerns about China's slowdown.

"Currencies are naturally sensitive to the volatility in equity markets (and in commodities for that matter)," said Kit Juckes, global foreign exchange strategist at Societe Generale, in a client note.

And equity markets, after enjoying a long rally inspired by the Federal Reserve's ultra-loose monetary policy, are on edge waiting for the Fed's first rate hike in more than nine years, he said.

The policy-setting Federal Open Market Committee is expected to weigh raising near-zero interest rates at its September 16-17 meeting, but the outlook for liftoff remains clouded.

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"Maybe, once the first rate hike is finally behind us (if that day ever dawns) we will see calmer markets," said Juckes.

But for now, and until the FOMC decision is announced on September 17, he said, foreign exchange and rates markets "will be the tail that is wagged by the equity and commodities dogs. Bubbles are being deflated."

James Stanley, currency analyst at DailyFX, said upcoming holidays and key data and policy events in various markets could skew trade in the coming days.

Chinese markets will be closed on Thursday and Friday, the European Central Bank holds a policy meeting Thursday and the US August jobs report comes on Friday.

"Chinese stocks could be in for a big day upon opening on Monday to price in all of this new data. And with US markets closed on Monday in observance of Labor Day -- the potential for extreme volatility could present itself," he said.