The U.S. dollar showed signs of stabilizing on Thursday, edging slightly higher after several days of losses, but lingering fiscal concerns continued to weigh on the currency as President Donald Trump’s tax bill moved closer to becoming law.
At 4:30 a.m. ET, the Dollar Index, which measures the greenback against a basket of six major currencies, ticked up 0.1% to 99.50 following three straight sessions of decline.
Fiscal Worries Weigh on the Dollar
The tax and spending bill championed by Trump cleared a key procedural hurdle in the House of Representatives on Wednesday when a crucial committee approved the measure, setting the stage for a full floor vote expected within hours.
If passed by the House, the bill would enter the Republican-controlled Senate, where it is expected to face extensive debate.
Concerns over the dollar’s weakness have been fueled by projections from the nonpartisan Congressional Budget Office, which estimates the legislation would add $3.8 trillion to the U.S. national debt, currently standing at $36.2 trillion, over the next decade.
Moody’s recently downgraded the U.S. credit rating from its highest AAA level, citing repeated government failures to address the growing debt burden.
“Market worries about the deficit implications of the bill have ramped up this week, triggering another coordinated selloff in U.S. stocks and bonds yesterday, leading to broad dollar weakness,” analysts at ING noted.
Adding to the unease was a poorly received 20-year Treasury bond auction, which weighed on both the dollar and U.S. equity markets.
Sterling Gains on Strong UK Data; Euro Edges Lower
In Europe, the euro slipped 0.1% against the dollar to 1.1319 after eurozone business activity unexpectedly contracted in May, with the services sector experiencing a sharper decline in demand.
The preliminary composite Purchasing Managers’ Index (PMI) for the eurozone fell to 49.5, down from 50.4 in April, missing expectations for a rise to 50.7 and signaling contraction as it dipped below the key 50 threshold.
ING analysts commented, “While a move to 1.150 in EUR/USD seems premature due to insufficient evidence of significant U.S. economic damage from tariffs, should economic divergence between the U.S. and Europe widen, and if the G7 summit fails to ease trade tensions, further euro gains appear likely.”
Meanwhile, the British pound rose slightly by 0.1% to 1.3426 against the dollar, supported by an improved U.K. composite PMI that climbed to 49.4 from 48.5 in April, alongside stronger-than-expected inflation data released on Wednesday.
However, ING noted, “Markets have only moderately reduced expectations for easing, with just a 50% chance of a rate hike by August priced in. As such, the CPI report offered limited support to the pound.”
Yen Strengthens Amid Quiet G7 Talks
In Asia, the Japanese yen gained ground, with USD/JPY falling 0.5% to 143.04, marking its lowest level since early May.
The yen’s rise followed comments from Japan’s Finance Minister Katsunobu Kato, who said he did not discuss currency levels during talks with U.S. Treasury Secretary Scott Bessent at the G7 meetings in Canada.
The Chinese yuan remained relatively stable, with USD/CNY inching up 0.1% to 7.2043 amid subdued trading activity.