Dollar falls further after of tax vote; euro rises on Ukraine peace talks

Investing.com - The U.S. dollar slipped lower Tuesday ahead of a crucial tax vote, while the euro gained on the raised likelihood for Ukraine-Russia peace talks.

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 100.05, after losing 0.6% in the previous session.

Tax bill weighs on dollar

The greenback retreated sharply on Monday in the wake of credit rating agency Moody’s cutting the United States’ sovereign credit rating from the prestigious treble-A rating.

Attention now turns to the congressional debate over U.S. President Donald Trump’s tax bill later in the session, which could add $3 trillion to $5 trillion to the country’s already hefty $36 trillion debt pile.

Ballooning fiscal debt, trade frictions, and weakened confidence about enduring U.S. exceptionalism have weighed heavily on the U.S. currency, with the dollar index having fallen over 10% from its January highs, one of the sharpest retreats for a three-month period.

There is little in the way of economic data due for release Tuesday, but traders will undoubtedly listen to speeches from a number of Fed officials, including Thomas Barkin, Mary Daly, Raphael Bostic and Adriana Kugler, for more information on how they see the U.S. economy performing this year. 

“Fed hawks are talking about the need for just one Fed 25bp cut this year, versus the 55bp priced in by money markets,” said analysts at ING, in a note. “We doubt the dollar needs to rally too much on those remarks and instead it will be driven by tariff news, the performance of US Treasuries (watch out for the 20-year auction tomorrow) and hard U.S. data.”

Euro benefits from likely Ukraine talks

In Europe, EUR/USD traded 0.2% higher to 1.1266, with the euro getting some benefit from growing hopes that a peace deal between Ukraine and Russia can be agreed.

President Volodymyr Zelenskiy said on Monday that Kyiv and its partners were considering arranging a high-level meeting between Ukraine, Russia, the United States, European Union countries and Britain as part of a push to end Moscow’s war in Ukraine.

The German producer price index fell 0.6% on the month in April, data showed earlier Tuesday, resulting in a drop of 0.9% on an annual basis.

The European Central Bank next meets in June, and is widely expected to cut interest rates once more, having eased monetary policy seven times in the past year.

“We slightly favor EUR/USD exploring the upside in quiet markets. A move through the 1.1265/1300 area can open up 1.1380,” said ING.

GBP/USD rose 0.2% to 1.3386, with sterling helped to a small degree by the apparent reset of relations between the U.K. and the EU after a Brexit during a summit, which ended on Monday.

PBoC cuts key rates 

In Asia, USD/JPY traded 0.4% lower to 144.31, with the yen continuing to appreciate after the Bank of Japan Deputy Governor indicated earlier in the week that more interest rate rises were to be expected.

USD/CNY traded 0.1% higher to 7.2198, after the People’s Bank of China reduced its benchmark lending rates for the first time since October 2024, aiming to bolster economic growth amid ongoing trade tensions with the U.S.

The one-year loan prime rate was lowered by 10 basis points to 3.0%, and the five-year LPR, a key reference for mortgage rates, was cut to 3.5% from 3.6%.

AUD/USD rose 0.6% to 0.6422, after the Reserve Bank of Australia cut its main cash rate to a two-year low of 3.85%, citing a darker global outlook and cooling inflation at home.