The U.S. dollar dropped against its most major counterparts in the early European session on Wednesday, after the U.S. President Donald Trump threatened to shutdown federal government unless the Congress funds money to build a border wall with Mexico and also hinted at the possible termination of the NAFTA deal.

Speaking at a rally in Phoenix, Arizona, Trump told that Congress should fund money to build a wall along the border with Mexico to prevent illegal migration.

"If we have to close down the government, we are building that wall," he said.

"One way or the other, we're going to get that wall."

The President also warned about the termination of NAFTA trade deal with Canada and Mexico, if the U.S. is "unable to make a fair deal."

Trump has sought the approval of $1.6 billion in federal funding for the wall, but it faces stiff opposition from the Democrats.

The greenback showed mixed performance in the Asian session. While the currency held steady against the euro and the pound, it dropped against the yen and the franc.

The greenback edged down to 109.33 against the yen, from a 6-day high of 109.83 hit at 8:00 pm ET. Continuation of the greenback's downtrend may see it challenging support around the 108.00 region.

The latest survey from Nikkei showed that Japan manufacturing sector continued to expand in August, and at a faster pace, with a Manufacturing PMI score of 52.8.

That's up from 52.1 in July, and it moves farther above the boom-or-bust line of 50 that separates expansion from contraction.

The greenback retreated to 0.9674 against the Swiss franc, after having advanced to a 6-day high of 0.9698 at 9:00 pm ET. If the greenback-franc pair extends weakness, it may challenge support around the 0.94 area.

The greenback reversed from an early 2-day high of 1.1740 against the euro, dropping to 1.1792. On the downside, 1.19 is likely seen as the next support level for the greenback.

Flash survey data from IHS Markit showed that Eurozone private sector activity maintained strong growth momentum in August, underpinned by strong expansion in the manufacturing output.

The flash composite output index rose slightly to 55.8 in August from 55.7 in July. Meanwhile, economists had expected the index to fall to 55.4.

On the flip side, the greenback advanced to near a 2-month high of 1.2796 against the pound, off its early low of 1.2834. The greenback is poised to find resistance around the 1.26 mark.

Looking ahead, U.S. Markit's PMI reports for August, U.S. new home sales data for July, Eurozone consumer confidence index for August and U.S. weekly crude oil inventories data are slated for release in the New York session.

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