Dollar stutters as US tax bill stirs anxiety over debt; yen gains

The dollar struggled on Tuesday to regain its footing as investor concerns over a sweeping tax and spending bill and its implications for the U.S. debt profile added to the recent erosion of confidence in American assets, Reuters reported.

The euro gained on Monday while the United States was on holiday, after U.S. President Donald Trump delayed the imposition of tariffs on Europe. The yen was underpinned by comments from the Bank of Japan governor that kept alive chances for interest rate hikes later this year.

Attention now turns to debate in the U.S. Senate on Trump’s tax-cut bill that is expected to add to the debt pile in the world’s largest economy. Markets have been sensitive to Trump’s proposal, particularly after Moody’s downgrade of the U.S. sovereign credit rating on May 16.

“There’s a whole lot of trends going on at the moment that are militating against the dollar and also suggesting that the outlook for the globe is pretty poor,” said Michael McCarthy, chief executive officer of Moomoo Australia. “Bond markets are telling us that the current economic weakness is going to get worse.”

Attention now turns to debate in the U.S. Senate on Trump’s tax-cut bill that is expected to add to the debt pile in the world’s largest economy. Markets have been sensitive to Trump’s proposal, particularly after Moody’s downgrade of the U.S. sovereign credit rating on May 16.

“There’s a whole lot of trends going on at the moment that are militating against the dollar and also suggesting that the outlook for the globe is pretty poor,” said Michael McCarthy, chief executive officer of Moomoo Australia. “Bond markets are telling us that the current economic weakness is going to get worse.”

In the latest example, Trump backed down from threatened 50% duties on European Union shipments from June 1, sending the euro rallying to a one-month high.

The single currency could become a viable alternative to the dollar if governments can strengthen the bloc’s financial and security architecture, European Central Bank President Christine Lagarde said on Monday.

Bond yields, particularly on the long end, have surged around the world as concerns mounted over growing fiscal deficits in advanced economies, led by the U.S. and Japan. Japanese Finance Minister Katsunobu Kato said on Tuesday the government is closely watching the debt market.

On the monetary front, BOJ Governor Kazuo Ueda said the central bank must be vigilant to rising consumer prices in Japan, signaling its readiness to keep hiking rates.

The greenback dropped 0.3% to 142.39 yen. The dollar index, which tracks the greenback against other major trading partners, slid 0.1%, down for a third-straight session.

The European single currency was up 0.1% to $1.1397, trading near the highest since April 29. Sterling was little changed at $1.3571.

The kiwi dollar was edged 0.1% lower to $0.5994 after touching a six-month high of $0.6031 on Monday. The Reserve Bank of New Zealand will meet on Wednesday where it is widely expected to cut interest rates to 3.25%, though uncertainty remains about its next moves.