Dollar on defensive as traders eye Trump tax bill, G7 currency talks

Traders were also wary of U.S. officials potentially angling for a weaker dollar at Group of Seven finance minister meetings currently underway in Canada.

Developments in Trump’s global tariff war, which have swung currencies wildly in recent months, have slowed considerably this week, even as the clock ticks down to the end of 90-day tariff respites for U.S. trade partners in the absence of new trade deals.

While markets remain optimistic that the White House is eager to get trade flowing again on a sustained basis, talks with close allies Tokyo and Seoul appear to have lost momentum recently.

All this has combined to keep the dollar under pressure and U.S. Treasury yields rising, as the “sell America” theme continues to inform investment decisions, if in a less dramatic fashion than earlier this month.

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A Moody’s downgrade of the U.S. sovereign debt rating on Friday may have only had a limited impact on markets, but it has added to the narrative of less faith in U.S. assets as safe havens. “Tariff rates are now lower, but not low, and the same can be said about recession risks in the U.S.,” Goldman Sachs analysts wrote in a research note. “But as recession risks have compressed, risks from higher rates are growing,” they said. “The U.S. still faces the worst growth-inflation mix of the major economies, and as the fiscal bill makes its way through Congress, eroding U.S. exceptionalism is proving – literally – costly at a time of large funding needs.”

“This leaves wider paths to a weaker dollar and a steeper U.S. Treasury curve.”

Trump’s tax bill would add $3 trillion to $5 trillion to the country’s debt, according to nonpartisan analysts. Ballooning fiscal debt, trade frictions, and weakened confidence have weighed on U.S. assets.

The dollar declined 0.14% to 144.31 yen early in Asia’s day, and slipped 0.22% to 0.8264 Swiss franc.

Japanese Finance Minister Katsunobu Kato said ahead of an expected meeting with U.S. Treasury Secretary Scott Bessent that talks on exchange rates would be based on their shared view that excessive currency volatility is undesirable.

The euro rose 0.07% to $1.1291, while sterling added 0.1% to $1.3405.

UK consumer inflation figures are the only data point of note over the course of the global day.

The dollar index, which measures the U.S. currency against those four peers and two other rivals, edged down 0.03% to 99.938, following a 1.3% two-day decline.

Federal Reserve officials on Tuesday also doubled down on their concerns about the impact of the Trump administration’s trade policies on the economy. The collective message was that the Fed is firmly in wait-and-see mode.

“There remains a high degree of confidence, possibly complacency, that agreements will be struck, tariffs will come down, and the pauses with countries like China will turn into permanent policy,” said Kyle Rodda, senior financial market analyst at Capital.com.

“However, for the momentum to continue, fresh news is required for the markets to extend their climb up the proverbial wall of worry.”