Dollar stutters as US tax debate grinds on; yen gains

The dollar struggled to regain its footing Tuesday as investor concerns over a sweeping tax and spending bill and its implications for the U.S. debt profile continued to undermine sentiment towards U.S. assets.

Global stock markets and the euro gained on Monday while the United States was on holiday, after U.S. President Donald Trump delayed the imposition of tariffs on Europe. Attention now turns to debate in the U.S. Senate on Trump's tax-cut bill that is expected to add to the debt pile in the world's largest economy.

Markets have been sensitive to Trump's proposal, particularly after Moody's downgrade of the U.S. sovereign credit rating on May 16.

"In a way, all roads have led to a weaker USD," said Chris Weston, head of research at Pepperstone. "Higher perceived U.S. deficits have raised concerns about increased future Treasury issuance, pushing up term premium and seeing people migrate away from the USD."

The U.S. House of Representatives last week passed a version of Trump's tax-cut bill that is calculated to add about $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade, according to the Congressional Budget Office.

Trump said on Sunday that the bill is likely to see "significant" changes as it is debated in the Senate.

Investor confidence in U.S. assets has been undermined in recent months in the wake of the U.S. president's erratic global tariff policies.

In the latest example, Trump backed down from threatened 50% duties on European Union shipments from June 1, sending the euro rallying to a one-month high.

The single currency could become a viable alternative to the dollar if governments can strengthen the bloc's financial and security architecture, European Central Bank President Christine Lagarde said on Monday.

The dollar dropped 0.3% to 142.35 yen. The dollar index, which tracks the greenback against other major trading partners, slid 0.1%, down for a third-straight session.

The European single currency was up 0.1% to $1.1399, trading near the highest since April 29. Sterling traded at $1.3581, up 0.1%.

The kiwi dollar was little changed at $0.5999 after touching a six-month high of $0.6031 on Monday. The Reserve Bank of New Zealand will meet on Wednesday where it is widely expected to cut interest rates to 3.25%, though uncertainty remains about its next moves.