TOKYO: The dollar traded sideways on Tuesday after having glided lower for a week, hemmed in by the Fed’s caution over the economy and as U.S. lawmakers came closer to passing a bill expected to widen the nation’s fiscal deficit.
The greenback sold off broadly on Monday following last week’s surprise downgrade of the U.S. sovereign rating by Moody’s on deficit concerns. Now attention turns to a critical vote in Washington over U.S. President Donald Trump’s sweeping tax cuts.
The Australian dollar held most of its gains ahead of the Reserve Bank of Australia’s decision later Tuesday, when it is widely expected to cut interest rates by 25 basis points.
Atlanta Fed President Raphael Bostic told CNBC on Monday the central bank may only be able to cut interest rates by a quarter point over the rest of the year given concerns about rising inflation stoked by higher import taxes.
Trump is expected to join the congressional debate over his tax bill on Tuesday. The vote comes after Moody’s stripped the U.S. government of its top-tier credit rating, citing concerns over the nation’s growing $36.2 trillion debt pile.
“The Moody’s U.S. sovereign downgrade was symbolic, and highlights what everyone already knew - that U.S. deficits and interest expenses are only going one way, and that Treasury coupon issuance will increase in 2026,” said Chris Weston, head of research at Pepperstone.
Trump’s bill would add $3 trillion to $5 trillion to the debt, according to nonpartisan analysts. Trade-related uncertainties, ballooning fiscal debt and weakened confidence about enduring U.S. exceptionalism have weighed on U.S. assets.
The U.S. dollar index has tumbled as much as 10.6% from its January highs, one of the sharpest retreats for a three-month period.
Dollar retreats on US ratings downgrade
The greenback edged up 0.1% to 144.99 yen , after touching 144.66 on Monday that was the weakest since May 8.
The dollar index rose 0.1% after sliding 0.6% in the previous session.
The Australian dollar was little changed $0.6449 , preserving most of Monday’s 0.8% surge.
Sterling traded at $1.3354 , down 0.1%.
The euro stood at $1.1234 , down 0.1%. Sterling traded at $1.3359 , down 0.03% so far on the day.
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