The US dollar strengthened on Wednesday, extending its post-election surge after three days of declines, while the Japanese yen weakened as demand for safe-haven assets eased.
The strengthening of the US dollar and other safe haven currencies such as the yen the day before, due to geopolitical concerns, proved to be temporary. This comes after Russia's Foreign Minister said his country would "do everything possible" to avoid nuclear war, just hours after Moscow announced it would lower its nuclear strike threshold.
"Fears over the Russia-Ukraine situation are easing, but markets will be sensitive to any new news," said Jane Foley, Head of FX Strategist at Rabobank, London.
The Japanese yen fell to 155.815 against the US dollar, erasing gains made the previous day. The yen's latest drop to a three-month low has fueled speculation about a possible hawkish Bank of Japan (BOJ) policy change, especially as it nears levels that triggered intervention in July.
The US dollar index, which measures the currency's performance against six other major currencies, strengthened 0.5% to 106.59, recovering from a three-day slide.
The US dollar index hit a one-year high of 107.07 last week, buoyed by expectations of big fiscal spending, higher tariffs, and tighter immigration controls under the new US administration. This move, according to economists, could trigger inflation and slow down rate cuts by the Federal Reserve.
Investors are still waiting for Trump to name a Treasury Secretary, the high-profile cabinet post that oversees the nation's financial and economic policy. Some of Trump's other appointments have caused controversy due to perceived lack of experience.
Sterling briefly strengthened but then eased as data showed UK consumer inflation jumped in October. This reinforces the view that the Bank of England will reduce rates gradually.
The euro slipped 0.4% to $1.0559 but was still far from the previous session's low of $1.0524.
