Japan's yen extended its pullback early on Wednesday, while higher-risk currencies such as the Australian dollar rallied after Turkey stunned markets with a massive interest rate hike in an effort to stem capital flight from its economy.
Turkey's central bank, hot on the heels of India, raised all of its key interest rates - more than doubling some - in a move that could help calm jitters over emerging markets in general.
The Turkish lira jumped to 2.1795 per U.S. dollar from 2.2530 before the moves.
The Australian dollar, often used as a liquid proxy for risk trades, rallied about 40 pips to $0.8813. It last traded at $0.8797. Against the yen, the Aussie came within a hair's breadth of 91.00 yen from 90.30.
The dollar and euro also firmed on the Japanese currency as investors quickly unwound recent safe-haven flows. That saw the greenback rise 0.3 percent to 103.27 yen, while the common currency gained 0.2 percent to 140.95 yen.
"We believe that the CBRT - with its aggressive move - has engineered a credible policy response," analysts at Societe Generale wrote in a note to clients, referring to the Central Bank of the Republic of Turkey.
"As a result, there is now scope for the Turkish lira to stage a quick rebound, at least in the short term," it said.
Markets were already calming down after Friday's panic selloff in some emerging markets assets which came amid expectations the U.S. central bank will further scale back its stimulus.
The Fed concludes its two-day policy meeting later on Wednesday and is all but certain to reduce its bond purchases for a second time, to $65 billion per month from $75 billion. It is, however, likely to leave intact its vow to keep interest rates low.
This meeting is the last for Fed Chairman Ben Bernanke, who will hand the reins to Vice Chair Janet Yellen.
The euro was little changed against the U.S. dollar at $1.3654, having drifted lower in the last few days from a high of $1.3740 last Friday.