Dollar Stabilizes Amid U.S. Tax Debate and Moody’s Downgrade

The U.S. dollar traded sideways on Tuesday after a week-long decline, pressured by cautious signals from the Federal Reserve and rising concerns over the growing U.S. fiscal deficit. Market focus has shifted to a key vote in Washington on President Donald Trump’s sweeping tax cuts, which could significantly increase the national debt.

The greenback fell broadly on Monday following Moody’s unexpected downgrade of the U.S. credit rating, citing concerns over the $36.2 trillion debt burden. Trump is set to join the congressional debate, with analysts estimating his proposed tax cuts could add $3 trillion to $5 trillion to the deficit.

Atlanta Fed President Raphael Bostic said Monday the central bank may only lower interest rates by 25 basis points this year due to inflation pressures from higher import tariffs. His remarks added to uncertainty over the Fed’s next move.

The dollar index edged up 0.1% after dropping 0.6% in the prior session, reflecting a tentative recovery. Against the yen, the dollar rose to 144.99 from Monday’s 144.66 low, its weakest level since early May. The euro slipped 0.1% to $1.1234, while the British pound traded at $1.3354, down 0.1%.

The Australian dollar held firm at $0.6449 after a 0.8% surge on Monday, as traders awaited a widely expected 25 basis point rate cut from the Reserve Bank of Australia later Tuesday.

Weighing on U.S. assets are rising trade tensions, fiscal instability, and eroding confidence in the country’s economic leadership. The dollar index has dropped 10.6% since January, marking one of the steepest three-month declines in recent years, underlining broader investor unease over U.S. economic direction.