The US dollar extended its recent decline on Wednesday as global investors remained cautious amid growing fiscal concerns in major developed economies and limited progress on key trade negotiations.
Financial markets were generally subdued, with equities mixed and safe-haven assets in demand.
Investor attention was centered on the ongoing Group of Seven (G-7) finance ministers’ meeting in Canada, where fiscal discipline and trade policy are top of the agenda. The backdrop to the discussions includes heightened unease about rising debt levels, particularly in the United States, where Moody’s recently downgraded the country’s credit rating. The downgrade has amplified concerns about the US’s $36 trillion national debt and proposed tax cuts that could add an estimated $3 to $5 trillion to the deficit over the next decade.
The Bloomberg Dollar Spot Index dropped 0.4% on Wednesday, marking its third consecutive daily decline and falling to a two-week low. Traders are closely watching the G-7 meeting for signs that Washington may be leaning toward a weaker dollar policy, a stance some officials have hinted at. Japanese Finance Minister Katsunobu Kato is expected to raise currency issues in talks with US Treasury officials this week, following South Korea’s recent discussions with Washington on the same topic.
The dollar’s decline accelerated in Asian trading hours, lifting the yen, Swiss franc, and euro to their highest levels in two weeks. The British pound also strengthened, touching a three-week high following stronger-than-expected UK inflation data.
Meanwhile, global equity markets reflected investor uncertainty. The STOXX index of major European shares edged down 0.2% in early trade, and US futures pointed to a weaker open on Wall Street. In Asia, however, MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.8%, hitting a seven-month peak as investors looked for opportunities outside the US.
Longer-dated US Treasury yields remained elevated, with the 30-year yield reaching 5%. Despite these attractive yields, the dollar continued to face pressure, as concerns mount over how the US will finance its fiscal agenda amid a potential shift in investor appetite.
Gold prices rose 0.7% to $3,311 per ounce, the highest in over a week, reflecting a move toward traditional safe-haven assets. Oil prices also climbed more than 1%, driven by a CNN report suggesting Israel may be preparing strikes on Iranian nuclear facilities—a development that reignited geopolitical risk concerns in the oil-rich Middle East.
Market participants also noted that US trade negotiations appear to be stalled, with foreign partners pushing the US to roll back tariffs. In Japan, export data showed a decline in shipments to the US in April, despite overall export growth, underscoring the impact of current US trade policies.
Adding to the cautious sentiment, US Federal Reserve officials signaled a wait-and-see approach on interest rates, citing inflationary pressures from higher import tariffs.
“The market may be re-evaluating its long-standing bias toward US assets,” said Moh Siong Sim, FX strategist at Bank of Singapore. “Rising fiscal concerns are contributing to a decline in the dollar and sustained high long-term yields. This could reflect the early stages of capital rotation out of US exposure.”
