The dollar remained under pressure on Wednesday (10 May), after FBI Director James Comey was surprisingly removed from his position by US President Donald Trump.
The move came after the FBI was forced to send a letter to Congress to clarify mistatements by Comey during a Senate Judiciary Committee hearing. However, analysts suggested Trump's decision was further proof of his erratic approach, which could fuel further market volatility.
The decision saw the dollar index, which measures the greenback's strength against a basket of currencies, drop 0.1% and the US currency fall to ¥113.63 and sent the euro back towards $1.09. However, the dollar subsequently recovered some ground and was trading flat against its major rivals, exchanging hands at ¥113.87 and CHF1.0068, while one euro bought $1.0870.
Analysts at Sucden said: "President Trump's decision to fire FBI Director Comey ahad some negative impact on the dollar, especially with concerns that it would undermine progress in securing congressional support for tax reform."
The shockwaves of Coney's dismsissal were felt on the other side of the Atlantic as well, where the pound edged higher against the dollar, climbing 0.12% to $1.2949 and approaching the $1.30 level for the first time in eight months.
Sterling was also marginally higher against the euro, rising 0.10% to €1.1906.
"The pound is moving towards the $1.30 psychological barrier against the dollar after the US currency weakened in response to the shock dismissal of FBI Director James Comey, putting Sterling in a strong position ahead of the Bank of England rate decision on Thursday [11 May]," said Paresh Davdra of Rational FX.
"Whilst interest rates may remain on hold for the foreseeable future, investors will be looking towards the performance of sterling in the lead up to the general election and afterwards."
The pound has risen by approximately 6% so far in 2017, recouping the sharp losses it suffered during last October's "flash crash", having gained 3.5% and 1.2% against the dollar and the euro respectively since Theresa May called a snap general election last month.
However sterling remains 12.6% lower than it was before the Brexit referendum, which makes it the worst-performing major currency in the 11 months since last June.
Kit Juckes, head of forex at Societe Generale and IBTimes UK columnist, added that should the pound break the $1.30 barrier, it "would probably trigger a sharper move upwards".