FX.co ★ Dollar Weakens on Fiscal and Trade Worries

The US dollar index declined to approximately 96.7 on Tuesday, marking its lowest point since February 2022. This drop was driven by increasing concerns regarding the US fiscal outlook and prevailing trade uncertainties, which both weighed heavily on sentiment. Market analysts are attentively monitoring the Senate’s progress on President Trump's comprehensive tax and spending proposal, anticipated to increase the national debt by $3.3 trillion. Simultaneously, investors are keen to see developments in trade negotiations between the US and its principal partners, especially as the 90-day grace period on wide-ranging reciprocal tariffs, instituted by Trump, nears its expiration next week. Furthermore, mounting pressure on the dollar stemmed from traders heightening their expectations for more significant Federal Reserve rate cuts, spurred by dovish signals from policy-makers and persistent pressure from Trump to lower borrowing costs. Consequently, the dollar has dropped to levels not seen in nearly four years against the euro and three-and-a-half years against the British pound. The focus now shifts to Thursday’s monthly jobs report, which investors are eagerly anticipating for new insights into the robustness of the US labor market.