By Ankur Banerjee

SINGAPORE (Reuters) – The U.S. dollar rose sharply and then steadied on Wednesday as President Donald Trump backed away from threats of firing Federal Reserve Chair Jerome Powell, providing relief to investors while optimism around trade deals lifted sentiment.

The markets this week have been grappling with concerns over the Fed’s independence after repeated attacks by Trump on Powell for not cutting rates since the president resumed office in January. However, late on Tuesday, Trump appeared to back down.

“I have no intention of firing him,” Trump told reporters in the Oval Office on Tuesday. “I would like to see him be a little more active in terms of his idea to lower interest rates.”

This statement helped the dollar to rise rapidly at the start of the trading day in Asian hours but it steadied by mid-afternoon ahead of the European open.

The dollar rose more than 1% against the yen to 143.21 in early trading and was last slightly stronger at 141.85. Against the Swiss franc, the dollar was last 0.4% stronger at 0.8222 after jumping more than 1% earlier in the session.

The euro eased 0.2% to $1.1393, while sterling was down 0.15% at $1.3313.

The dollar had been trading near multi-year lows versus the euro and the Swiss franc on Tuesday, while the yen hit a seven-month high as investors dumped U.S. assets, worried by trade tensions and Trump’s attacks on the Fed.

Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, mentioned that the odds were low that Trump could remove Powell but his comments on the Fed chair and China were “music to the market’s ears.”

“Markets are realizing the administration cannot afford to let asset prices crash, and this is drawing in dip buyers,” Newnaha pointed out. “For now, Trump views propping up markets as providing him with policy leverage.”

Additionally, comments from Trump and U.S. Treasury Secretary Scott Bessent suggested a possible de-escalation in U.S.-China trade tensions, with any trade deal potentially “substantially” cutting tariffs.

“Trade is the bigger story here as how tariffs play out will dictate where the U.S. economy, and therefore U.S. interest rates, are headed,” stated Matt Simpson, senior market analyst at City Index.

“The dollar has been showing tentative signs of a trough since last week, but if Bessent is correct in thinking that trade tensions are to recede, it could prove to be the trigger that dollar bulls were looking for,” Simpson noted.

Bessent mentioned that neither side sees the status quo as sustainable, adding that the Trump administration’s goal was not to decouple the world’s two largest economies, according to a source who attended his presentation to investors at a JP Morgan conference.

Meanwhile, Trump expressed optimism that a trade deal with China could “substantially” cut tariffs, suggesting that a final deal will not “be anywhere near” current tariff rates. However, he added that “it won’t be zero.”

Beyond Trump’s attacks on the Fed, investor focus has been on trade deals between the U.S. and other countries. After setting a baseline import tax of 10% and much higher on many countries earlier this month, Trump abruptly put the steeper levies on hold for 90 days to allow negotiations for less stringent rates.

White House press secretary Karoline Leavitt reported that 18 countries have proposed changes so far, with Trump’s trade negotiating team set to meet with 34 this week to discuss tariffs.

In other currencies, the Australian dollar rose 0.49% to $0.6396, while the New Zealand dollar was 0.28% higher at $0.598.

In cryptocurrencies, bitcoin rose over 2% to $93,395, exceeding $90,000 for the first time since March. Ether jumped nearly 6% to $1,796.