The US dollar traded sideways on Tuesday, following a week of declines stirred by the Federal Reserve’s prudent outlook on the economy and mounting fears regarding a potential widening of the nation’s fiscal deficit. After experiencing a broad sell-off on Monday, the greenback remained under pressure, reflecting ongoing market apprehensions surrounding the country’s economic stability.
Analysts are now particularly focused on a pivotal vote taking place in Washington regarding President Donald Trump’s sweeping tax cuts, which are projected to add between $3 trillion and $5 trillion to an already staggering national debt of $36.2 trillion. Concerns prompted last week’s downgrade of the US sovereign rating by Moody’s, which cited these fiscal pressures as a basis for its decision.
“The market is still very wary of the lack of austerity coming from the fiscal side in the US,” remarked Rodrigo Catril, senior FX strategist at National Australia Bank. His comments highlight a growing concern that the dollar may weaken further in the coming quarters as investors begin to require a higher risk premium to lend to the US government.
As President Trump prepares to engage with Congress over his tax bill, the broader economic ramifications are becoming increasingly apparent. The dollar index, which tracks the greenback against several major currencies, has plummeted approximately 10.6% from its January peaks—a sharp decline that reflects the financial market’s diminishing confidence in US exceptionalism amid ballooning fiscal debt, rampant trade frictions, and overall uncertainty.
The dollar managed to catch its breath after Trump initially paused some of the significant tariffs he introduced last month. However, remarks from Japan’s top trade envoy have underscored the complexity of resolving US-Japan trade relations, indicating that negotiations are likely to remain contentious in the future.
In the wake of these tariff disruptions, Britain recently formalised a significant reset in defence and trade ties with the European Union, marking a notable shift since Brexit.
On the market’s movements, the dollar remained largely unchanged against the yen, trading at 144.87 after a tumble to 144.66—the weakest rate seen since May 8. A lack of strong directional cues in the foreign exchange market contributed to this stagnation. SMBC’s chief currency strategist, Hirofumi Suzuki, noted, “The FX market is choppy with few cues,” highlighting the anticipation surrounding forthcoming meetings of G7 finance ministers and central bank governors.
Meanwhile, the Australian dollar has also experienced fluctuations, slipping slightly to $0.6443 AUD, after enjoying a noteworthy surge of 0.8% the previous day. In contrast, the British pound traded at $1.3353 GBP, down marginally by 0.1%, while the euro saw a slight dip to $1.1230.