US Dollar Makes a Small Comeback While Market Sentiment Remains Uneasy; Euro Shakes
The US dollar managed a modest recovery on Thursday after three days of losses. This came as the House of Representatives narrowly approved President Trump's sweeping tax and spending plan, even though fresh economic data painted a gloomy picture for the eurozone, causing the euro to stumble.
Meanwhile, Bitcoin surged to a new all-time high, as investors increasingly looked for alternatives to traditional US assets.
Market focus has been largely on Trump’s extensive tax bill, which has sparked mixed feelings. While some traders are relieved by its passage, others are cautious, since it is expected to add significantly to the US national debt. The market now watches closely as the Republican-led Senate gears up for weeks of debate.
The non-partisan Congressional Budget Office projects that the bill will increase the national debt by $3.8 trillion, adding to an already massive $36.2 trillion over the next ten years.
"The dollar’s up a bit today, but clearly, market nerves are still on edge. Most of the recent movements seem to be more about unwinding previous dollar shorts than any strong buying," said Helen Given, Director of Trading at Monex USA in Washington.
In late morning trading, the dollar inched up by 0.1% to 143.75 yen after previously falling to 142.80—the lowest level since May 7.
A lower-than-expected number of weekly jobless claims gave the dollar a slight lift, as the labor market continued to show signs of stability. Initial claims for state unemployment benefits dropped by 2,000 to a seasonally adjusted 227,000 for the week ending May 17, beating economists’ forecasts of 230,000.
On the other hand, a disappointing 20-year bond sale on Wednesday reinforced the “Sell America” sentiment and weighed on the dollar. The weak auction also rattled Wall Street amid heightened anxiety following Moody’s downgrade of the US triple-A credit rating last week.
The euro fell 0.3% against the dollar, settling at $1.1293, after three consecutive days of gains. This drop came after new data from HCOB’s preliminary composite Purchasing Managers’ Index showed an unexpected contraction in eurozone business activity.
"The lackluster data signals poor short-term economic prospects in the region, especially with the lingering impact of Trump's tariffs and a seemingly unlikely trade deal at this point," commented Harry Woolman, an analyst at Validus Risk Management.
The British pound managed a slight rise of 0.1% to $1.3434, staying near a three-year high reached on Wednesday, even as hot inflation dampened hopes for rate cuts from the Bank of England.
The dollar index, which tracks the US currency against six major peers, climbed 0.2% to 99.844, just above its two-week low of 99.333 recorded yesterday.
Bitcoin continued its rally, reaching as high as $111,862.98—a new record high and a 3.3% jump from Wednesday’s closing price.
"Investor sentiment has clearly shifted in favor of Bitcoin over traditional assets, with capital flows into BTC picking up sharply," noted Hina Sattar Joshi, Director at TP ICAP – Digital Assets. "This week has seen another surge in demand for bitcoin ETFs, reinforcing the overall trend."