The U.S. dollar rose on Tuesday as investors paused to reassess the likely success of the government plan to remove bad assets from banks' balance sheets and returned to safe-haven bids on the greenback. In late New York afternoon session, the greenback surged against a basket of six other major currencies and dollar index was up by 0.8 percent to trade at 84.13.

The single currency was under pressure on Tuesday as eurozone policy-makers suggested interest rates in the region could fall further while data showed manufacturing and services sector activity continued to contract significantly. In late New York session, the euro dropped by 1.2 percent against the dollar to 1.3462.

On the other hand, however, the British pound posted strong gains against the dollar and euro after U.K. inflation rose unexpectedly in February and Bank of England Governor Mervyn King said the central bank's quantitative easing program may be reduced if it is successful. Sterling touched a six-week high of 1.4780 against the dollar and was up by 0.7 percent to 1.4778 in late New York afternoon while euro/gbp fell sharply to as low as 0.9160 and last trading at around 0.9173.

The yen was remaining under pressure earlier in the day as continuing worries that the currency is overvalued and concerns about Japan's weak economy. The dollar rose to a session high of 98.58 versus yen and was up by 0.7 percent to 97.71 in late afternoon New York trade while euro surged to as high as 134.50 (highest level since October) before selloff and fell 0.5 percent to 131.43 yen.

The U.S. stock markets slid on Tuesday, giving back some of their previous session’s big gains. The Dow Jones industrial average shed nearly 1.5 percent or 115 points and closed at 7,659, while the Standard and Poor’s 500 and the Nasdaq Composite Index dropped by 2.0 percent and 2.5 percent to 806 and 1,1516 respectively.

On Wednesday, economic data release includes Japan trade balance data, German Ifo index, U.K. CBI distribution trade, and U.S. new home sales, durable goods data. U.S. President Barack Obama will hold a White house news conference at 00:00GMT and Treasury Secretary Timothy Geithner will speak at the Council on Foreign Relations in New York at 13:15GMT.