Trading ranges were again tight with both Japan and China on holiday and little in the way of major economic data in the diary. The break was welcome after a volatile session overnight.

The dollar had taken an initial knock from a surprisingly sharp retreat in the ISM index of manufacturing to 52.8, which overshadowed a strong ADP report on hiring.

It fell further when the Fed downgraded its inflation outlook and made a technical cut to rates on excess reserves.

All that changed when Fed Chair Jerome Powell said the factors dragging on inflation might be "transitory" and he saw no case for a rate move in either direction.

The net result was a rebound in a dollar index against a basket of currencies, leaving it last at 97.606 compared to a low of 97.149 on Wednesday.

The euro was back at $1.1207, after reaching as high as $1.1265 overnight, while the dollar steadied at 111.54 yen  from a low of 111.03.

Bonds likewise see-sawed with the two-year yield first diving to a one-month trough of 2.206 percent, only to end the Wednesday session 4 basis points higher at 2.31 percent.

As the dust settled, the market had scaled back a little of its wagers for Fed rate cuts this year with 2.25 percent implied for December.

"Our view remains that the Fed has completed its policy normalisation process and we should expect an extended period of rates on hold," said Joseph Capurso, senior currency strategist at CBA. "But the risk to our forecasts have changed."

"If the FOMC is to change the Funds rate over the next few years, it is likely to be a cut," he said, citing slowing inflation, record-low inflation expectations and flat wages.

The next major test for the dollar will be U.S. payrolls on Friday where any surprise has the power to shift Fed rate  expectations all over again.

Sterling was one of the few currencies to buck the dollar, touching a two-week high on Wednesday on speculation Brexit talks between the British government and the main opposition party were making some progress.

The pound was last at $1.3054 in Asia, having been as high as $1.3101 overnight.

There was scant immediate reaction to a report the United States and China were nearing a trade deal that would roll back a portion of the $250 billion in U.S. tariffs on Chinese goods.

Investors have become accustomed to endless reports of progress and want to see an actual deal signed before celebrating.