Dollar Weakens as Traders Eye Tariffs, Tax Bill, and Fed Caution

The U.S. dollar continued its decline on Wednesday, extending a two-day slide against major currencies as President Donald Trump struggled to rally Republican support for his ambitious tax reform bill. The proposed bill, expected to add $3–5 trillion to national debt, has heightened investor concerns over U.S. fiscal stability.

Currency traders remain cautious amid speculation that U.S. officials may be pushing for a weaker dollar at the ongoing G7 finance meetings in Canada. This comes as momentum in trade talks with key allies like Japan and South Korea slows, and tariff reprieves near expiration without new agreements in place.

The dollar’s weakness is also driven by rising U.S. Treasury yields and concerns about America's diminishing appeal as a safe-haven investment. Last week’s Moody’s downgrade of the U.S. sovereign debt rating further dampened sentiment. Goldman Sachs warned that while recession fears have eased, risks from rising rates are increasing, and the U.S. still faces the most challenging growth-inflation mix among major economies.

Early in Asian trading, the dollar dropped 0.14% to 144.31 yen and 0.22% to 0.8264 Swiss franc. The euro rose 0.07% to $1.1291, while the British pound edged up 0.1% to $1.3405 ahead of UK inflation data. The dollar index slipped 0.03% to 99.938 after a sharp two-day drop of 1.3%.

Federal Reserve officials reiterated their cautious stance, emphasizing uncertainty around trade policies. Markets remain hopeful for trade resolutions, but analysts caution that further optimism hinges on new developments.

Investors are now watching for signs of sustained progress in fiscal and trade policy, as continued uncertainty could keep the dollar under pressure in the near term.