U.S. Dollar Slips as Fiscal Concerns Drive Safe-Haven Demand

The U.S. dollar weakened on Friday, marking its first weekly decline in five weeks against major currencies like the euro and yen, as investors shifted to safe-haven assets amid rising concerns over America’s ballooning debt and fiscal outlook. This follows Moody’s recent downgrade of U.S. debt and renewed scrutiny over the $36 trillion national debt and President Donald Trump’s tax bill, which could significantly inflate the deficit.

The dollar index dipped 1.1% this week, trading at 99.829 in early Asia hours, despite surging U.S. Treasury yields. The 30-year bond yield held above 5%, nearing 19-month highs and approaching levels not seen since mid-2007. However, the elevated yields failed to support the dollar, triggering a "Sell America" trend as foreign investors pull back amid fears of fiscal irresponsibility.

Pepperstone’s Chris Weston attributed the market’s reaction to rising yields not to stronger economic fundamentals but to growing worries about deficit spending, inflation expectations, and higher interest burdens. These concerns have pushed up the term premium, discouraging foreign participation in U.S. markets.

The euro rose 0.21% to $1.1303, heading for a 1.2% weekly gain, while the yen steadied at 143.84 per dollar, also up 1.2% for the week. Japan’s core inflation hit a two-year high in April, boosting prospects for another rate hike. The Swiss franc firmed to 0.8272 per dollar, and the New Zealand dollar edged up to $0.59095.

Meanwhile, the Australian dollar traded at $0.6422, little changed for the week, following the Reserve Bank of Australia’s rate cut to 3.85% due to global uncertainties and easing domestic inflation.