US dollar spikes, then falls as traders speculate over whether Trump will face legal issues

Key Points
Sudden dollar jump

The U.S. dollar briefly surged against the British pound and other currencies Thursday in a sudden move that was at first unexplainable by many traders contacted.

Later, currency traders and participants from other markets cited the reemergence of a CSPAN video from earlier in the month that some falsely interpreted as former FBI Director James Comey saying he was never pressured to end an FBI probe. In the video, however, Comey is answering a question specific to the U.S. Attorney General or "senior officials at the Department of Justice," not President Donald Trump.

However, multiple traders said this was the trigger for the brief move higher in the dollar, as well as the Dow Jones industrial average, which hit a new high for the day shortly after the initial currency move.

The video "is also giving a lift to stocks, but it isn't all it seems," said Adam Button, currency analyst at

The U.S. dollar index erased its gains in afternoon trade, after earlier rising 0.4 percent to near 98. The pound also recovered from its worst levels against the greenback.

US dollar index two-day performance

Source: FactSet

Earlier in the afternoon, pound sterling suddenly hit an intraday low below $1.29, before recovering.

At first, some traders were quick to blame a so-called fat finger trade or computer program gone awry, but then the pound and other currencies followed through and traded lower against the dollar.

That's when traders then began to cite the video as the catalyst.

"I think that's part of it as well," said Wedbush Securities' Arthur Bass, managing director, fixed income financing, futures and rates, referring to the video. He also noted that it was reasonable for markets to recover slightly from Wednesday's big moves.

The U.S. dollar index on Wednesday hit a low of 97.481, its lowest since Nov. 9, while the Dow posted its worst decline since September on fears that a report alleging Trump asked Comey to end an investigation into former national security advisor Michael Flynn could potentially lead to impeachment, preventing promised tax reform, deregulation and infrastructure spending from ever happening.

Since the election, hopes of pro-growth policy have sent U.S. stocks surging to record highs and the U.S. dollar index climbing briefly to its highest in more than 14 years.

"I think people are coming down more to earth," Bass said. "We're not moving on fundamentals right now. We're moving on expectations we're going to get a stimulus package after eight years or not. That's what's driving us."

Earlier on Thursday, pound sterling hit a high of $1.3047 against the dollar, its highest since September 29.

Also earlier, the Japanese yen hit 110.21 its strongest level against the dollar since April 25 and the euro briefly hit a high of $1.1171 against the dollar, the highest since Nov. 9.

— CNBC's Gina Francolla contributed to this report.