NEW YORK: The dollar slipped on Wednesday as risk appetite faded after US President Donald Trump unexpectedly fired FBI Director James Comey, raising questions about whether this latest crisis could impede the implementation of the government's economic agenda.
"The tone is mildly risk-averse but perhaps reflects a collective shift to neutral for markets, until there is a little more clarity on the Trump/FBI front," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
Trump said Comey - who had been leading an investigation into his 2016 presidential campaign's possible collusion with Russia to influence the election outcome - was let go due to his mishandling of an email scandal involving presidential nominee Hillary Clinton.
But the move ignited a political firestorm, raising suspicions that the White House was trying to blunt the FBI probe involving Russia.
The market though remains dollar-bullish especially against the yen as investors expect US growth to pick up in the second half of the year and the Federal Reserve to maintain its rate-hike stance.
However, that outlook depends largely on a generally smooth political environment that would allow Trump to focus on domestic issues and an eagerly-anticipated tax reform legislation," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.
"If yesterday's action (Comey firing) is just the start of a massive constitutional confrontation with both Republicans and Democrats demanding an independent prosecutor on Russia collusion probe, then much of Mr. Trump political capital will be wasted on defending himself against accusations of malfeasance," said Schlossberg.
The dollar, which had strengthened to as much as 114.32 yen on Tuesday, slid back to 113.90 yen, down 0.1 percent.
Against a basket of six currencies, the dollar was down 0.1 percent at 99.55.
Rekindled worries that North Korea could be gearing up for another weapons test underpinned the safe-haven yen as well. .
The yen had sunk to an eight-week low the previous day as appetite for riskier currencies increased after a French election result that eased euro break-up fears.
Comments from European Central Bank President Mario Draghi on Tuesday, meanwhile, failed to have any impact on the euro, which was flat at $1.0875. Draghi said it was too early for the ECB to declare victory in its quest to boost euro zone inflation.
The euro had risen to a six-month high above $1.10 on Monday, after Emmanuel Macron defeated the anti-EU Marine Le Pen in France's presidential run-off, as worries over European political risk faded.
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