By Jemima Kelly
LONDON (Reuters) - The dollar steadied close to an eight-week high against the safe-haven yen on Wednesday as risk appetite - historically high in recent days - recovered from a dip in Asian trading when U.S. President Donald Trump abruptly fired the head of the FBI.
Trump said he had sacked FBI Director James Comey - who had been leading an investigation into the Trump 2016 presidential campaign's possible collusion with Russia to influence the election outcome - over his handling of an email scandal involving presidential nominee Hillary Clinton.
But Democrats immediately accused Trump of having political motives, piquing investors' aversion to risk, and sending the dollar down as much as 0.6 percent against the yen
By 0752 GMT, though, the strong risk appetite that has dominated global markets this week appeared to be returning, and the dollar edged back above 114 yen, close to the previous day's high of 114.325.
Both realized and implied volatility have fallen sharply since Emmanuel Macron defeated the anti-EU Marine Le Pen in France's presidential run-off on Sunday, as worries over European political risk have faded and focus has returned to central bank policy.
The Swiss franc, another safe-haven currency, fell to its lowest in seven months on Tuesday and stayed close to that at 1.09575 francs per euro, flat on the day (EURCHF=).
Commerzbank (DE:CBKG) currency strategist Esther Reichelt, in Frankfurt, though, said risk appetite could only drive the currency market so far before new drivers were needed.
"Dollar strength could materialize more, given the more benevolent risk environment, but that can only move the market for so long – you always need new impetus," she said.
The dollar index, which tracks the greenback against a basket of six major currencies, had hit a three-week high of 99.688 on Tuesday (DXY), but it slipped 0.2 percent to 99.415 on Wednesday.
U.S. political uncertainty has tended to weigh on the dollar in recent months, on the view that a divided Congress could derail Trump's promised tax reform and stimulus program.
"The 'Trump trade' lifted the dollar after the election, but now we have to see if he can deliver on all of his promises," said Bart Wakabayashi, branch manager for State Street Bank and Trust in Tokyo.
The euro edged up 0.1 percent against the yen to 124.31 (EURJPY=EBS), close to Monday's one-year high of 124.58.
Against the dollar, it gained 0.2 percent but stayed below $1.09, having topped $1.10 after Macron's election win.
Focus was on a speech later in the Netherlands by European Central Bank chief Mario Draghi, who will be watched for a possible move towards a more hawkish tone amid strength in the euro zone economy and receding political risks.
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