Dollar steadies after sharp losses; Trump tax bill in focus

Investing.com - The U.S. dollar edged higher Thursday, but fiscal concerns kept the currency under pressure as the passage of President Donald Trump’s tax bill moved closer.

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 99.500, after three consecutive losing sessions.

Dollar under pressure

Trump’s tax and spending bill cleared an important procedural hurdle in the lower house on Wednesday, when a gatekeeper committee approved the measure and set up a floor vote for passage to occur within hours.

House passage would set the stage for weeks of debate in the Republican-led Senate.

The passage of the bill has weighed on the dollar, with the nonpartisan Congressional Budget Office estimating the bill will add $3.8 trillion to the $36.2 trillion in U.S. debt over the next decade.

Moody’s downgraded its U.S. credit rating from the top treble-A rating, citing the failing of successive governments to deal with the country’s growing national debt.

“Market concerns over the deficit impact of the bill have intensified this week, and triggered another coordinated selloff in US equities and bonds yesterday. The dollar is falling across the board as a consequence,” said analysts at ING, in a note.

A lackluster 20-year bond sale reinforced these concerns, weighing not just on the dollar but on Wall Street as well.

Sterling edges higher after strong growth data

In Europe, EUR/USD slipped 0.1% lower to 1.1319 after eurozone business activity unexpectedly slipping back into contraction this month as the bloc’s dominant services industry suffered a deeper downturn in demand.

HCOB’s preliminary composite eurozone Purchasing Managers’ Index dropped to 49.5 this month from April’s 50.4, below the 50 mark separating growth from contraction and confounded expectations for a rise to 50.7.

“We generally deem a move to 1.150 in EUR/USD as premature given the lack of hard evidence on the economic damage in the US from tariffs. To be sure, if PMIs reveal a growing divergence between the US and Europe, the G7 summit fails to offer signs of trade de-escalation, and above all, Treasury markets remain under pressure, another leg higher in EUR/USD would be inevitable,” said ING.

GBP/USD rose 0.1% to 1.3426, with the composite U.K. Purchasing Managers’ Index gaining to 49.4 this month from April’s 48.5. 

This followed data, released on Wednesday, showing that British inflation surged by more than expected in April.

“Markets have scaled back easing bets only modestly, and an August move is still just about 50% priced in. As a consequence, there hasn’t been much support for the pound coming from the CPI release,” said ING.

Yen rises to highest level since early May 

In Asia, USD/JPY traded 0.5% lower to 143.04, falling to the lowest level since May 7.

This followed Japanese Finance Minister Katsunobu Kato saying he did not talk about foreign-exchange levels in his discussions with U.S. Treasury Secretary Scott Bessent on the sidelines of the Group of Seven meetings in Canada.

USD/CNY traded 0.1% higher to 7.2043, in muted trading.