Trump announces trade deal with EU following months of negotiations
Investing.com -- This week has seen the U.S. dollar decline as market concerns intensified over the potential deficit impact of the new US tax bill.
House leaders, aiming to secure a vote before the Memorial Day recess, have proposed a revised version of the bill that includes an increased threshold for tax deductions and accelerated Medicaid cuts. This move, designed to appeal to moderate and conservative Republicans respectively, has not assuaged fears about the bill’s effect on the deficit.
The apprehension surrounding the bill’s fiscal implications triggered a coordinated selloff in US equities and bonds on Sunday. The downturn was exacerbated by a disappointing 20-year Treasury auction, which further pressured Treasury yields. The 10-year US Treasury spread to the Secured Overnight Financing Rate (SOFR) widened to -58 basis points, signaling heightened market stress.
The recent market events have highlighted the vulnerability of the US dollar to renewed confidence issues, especially relating to US assets. The pressure on Treasury securities has been particularly pronounced and could potentially lead to policy reassessment in Washington.
As markets look ahead, early indications suggest the dollar might find some temporary support or even a rebound.
Nonetheless, traders remain cautious, with ING noting a tendency to sell into any strength of the U.S. Dollar Index (DXY) above the 100.0 level. Today’s economic agenda includes the release of the S&P Global PMIs, which could exert additional pressure on the dollar if they indicate a contraction below the 50.0 threshold, a level that has been maintained since early 2023.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.