Aggressive language from Trump on Iran and a refugee deal with Australia also put the focus back on the geopolitical risks from his administration rather than the expectations of higher inflation that dominated markets' initial thinking last year.
The dollar index, which measures the greenback against a basket of six major rivals, slumped to its lowest since Nov. 14 at 99.233 in morning trade in Europe, before ticking 0.2 percent higher to 99.84. The euro hit an eight-week high against the dollar of $1.0828, before holding around $1.076, while the dollar slumped as much as 1 percent against the yen to 112.06 yen. The Japanese currency last traded around 112.70.
That put the dollar near Tuesday's two-month trough against the Japanese currency of 112.04 yen.
"Yesterday's FOMC statement wasn't overtly hawkish as some had speculated, no obvious signals that March is a live meeting," said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.
"You have the broader story around Trump's incessant combative approach to international relations, and very little news on pro-growth, pro-business stuff like taxes and infrastructure," he added. "That is hurting the dollar because it's triggering people to pare back their reflation bets on the U.S."
Trump said in a tweet on Thursday that "Iran has been put formally put on notice" for firing a ballistic missile and labelled a refugee swap deal with Australia "dumb."