The U.S. dollar continued its downward spiral on Tuesday, extending losses after a week-long decline driven by mounting concerns over the nation’s fiscal health and cautious signals from the Federal Reserve.
The greenback, already battered by a recent downgrade of the U.S. sovereign credit rating by Moody’s, fell broadly against major currencies as investors braced for a pivotal congressional vote on President Donald Trump’s sweeping tax cut proposal, which analysts warn could further balloon the nation’s already staggering $36.2 trillion debt.
The U.S. dollar index, which measures the currency against a basket of peers, slipped 0.35% to a fresh 12-day low, continuing a sharp retreat that has seen it tumble 10.6% from January highs—one of the most significant three-month declines in recent memory.
Against the Japanese yen, the dollar weakened to 144.305, down 0.35%, while the euro edged up 0.14% to $1.1259. The Swiss franc also gained, pushing the dollar down 0.2% to 0.83280 francs.
The dollar’s woes come on the heels of Moody’s downgrade of the U.S. sovereign rating last week, a move that cited rising deficits and a lack of fiscal discipline.
The downgrade has amplified market unease, particularly as Washington inches closer to passing Trump’s tax bill, which nonpartisan analysts estimate could add between $3 trillion and $5 trillion to the national debt over the next decade.
The market is still very wary of the lack of austerity coming from the fiscal side in the U.S., said Rodrigo Catril, senior FX strategist at National Australia Bank. “We think that is potentially a driver for dollar weakness over the coming quarters as the market is likely to demand a higher premium to lend money to the U.S.”
Adding to the pressure, Atlanta Federal Reserve President Raphael Bostic signaled on Monday that the U.S. central bank may limit interest rate cuts to just a quarter point for the remainder of 2025, citing concerns over rising inflation fueled by Trump’s proposed tariffs.
Bostic’s cautious tone, shared in an interview with CNBC, underscored the Fed’s delicate balancing act as it navigates an economy grappling with trade tensions and fiscal uncertainty.
The tax bill, set for a critical vote in Congress on Tuesday, has become a lightning rod for debate. President Trump is expected to join the discussions, aiming to rally support for the measure, which promises significant tax relief but at the cost of further straining the nation’s finances.
Critics argue that the bill, combined with Trump’s aggressive tariff policies, risks undermining confidence in U.S. assets. While Trump recently paused some of the largest tariffs announced last month, providing a temporary reprieve for the dollar, Japan’s top trade envoy signaled on Tuesday that Tokyo remains steadfast in its opposition to U.S. tariffs, dimming hopes for a swift resolution to trade frictions.
Elsewhere, the Australian dollar diverged from the broader trend, slipping 0.59% to $0.64195 after the Reserve Bank of Australia (RBA) cut its benchmark interest rate by 25 basis points and hinted at further easing.
The move trimmed a 0.8% gain from Monday, with Commerzbank FX analyst Antje Praefcke noting that the RBA’s statement offered no indication of pausing its rate-cutting cycle. “This is why the AUD took a slight hit this morning,” Praefcke wrote in a note to clients.
Meanwhile, the British pound strengthened, rising 0.16% to $1.33840 after a 0.6% gain on Monday, buoyed by news of a significant reset in defense and trade ties between the United Kingdom and the European Union—the most substantial since Brexit.
The agreement, announced on Monday, has bolstered confidence in the pound amid a backdrop of global trade uncertainties.
WHAT YOU SHOULD KNOW
The combination of a growing fiscal deficit, trade tensions, and a cautious Federal Reserve has cast a long shadow over the dollar, with analysts warning that further volatility could lie ahead.
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