Dollar Extends Gains on Trade Optimism; Yen Softens Amid Weak Bond Demand
The U.S. dollar rose for a second consecutive session on Wednesday, supported by growing optimism around trade developments that could bolster the U.S. economic outlook. Meanwhile, the Japanese yen weakened after poor demand surfaced for a 40-year government bond auction.
Confidence in the U.S. economy improved after President Donald Trump over the weekend delayed a planned 50% tariff on European Union imports. Earlier this month, the U.S. and China also reached an agreement to ease tariffs on each other, further improving sentiment.
“The abrupt reversal of European tariff threats over the weekend has lifted market risk appetite and tempered concerns over U.S. growth, giving the dollar a boost,” said Karl Schamotta, chief market strategist at Corpay.
Investors are also closely watching NVIDIA’s earnings report, due after U.S. markets close Wednesday. A strong performance by the chipmaker could further fuel risk sentiment and strengthen the dollar, according to Schamotta.
The release of minutes from the Federal Reserve’s May 6–7 meeting had little immediate impact on the greenback. Fed officials acknowledged potential upcoming challenges, including a possible trade-off between rising inflation and higher unemployment, with staff also flagging an increased risk of recession.
While the Fed held interest rates steady at the May meeting, futures markets suggest rate cuts are most likely to resume in September. Tuesday’s robust consumer confidence figures, however, supported the view that the economy remains resilient. As a result, the Fed is expected to keep its focus on curbing inflation unless a clear downturn emerges.
Yen Slips as Japanese Bond Demand Disappoints
The euro declined 0.35% to $1.1288 against the U.S. dollar. The greenback also advanced 0.33% against the yen, trading at 144.8. The U.S. dollar index rose 0.39% to 99.92.
Japan’s auction of 40-year bonds on Wednesday saw the weakest demand since July, contributing to a broader selloff in ultra-long-term debt amid recent surges in yields. The yen had already dropped roughly 1% against the dollar on Tuesday after reports suggested Japan may scale back issuance of long-dated bonds in response to rising yields.
Sluggish appetite for long-term government debt has spotlighted growing fiscal deficits globally. In the U.S., markets are also monitoring the progress of a major budget and spending bill that could significantly expand federal debt.
On tax policy, President Trump said Wednesday he plans to renegotiate parts of his “big, beautiful” tax law, expressing mixed satisfaction with its current form.
Mixed Moves in Australian and New Zealand Dollars
The Australian dollar weakened by 0.33% to $0.6422 against the U.S. dollar, after inflation data showed steady consumer prices in April, keeping the door open for further interest rate cuts.
In contrast, the New Zealand dollar rose 0.2% to $0.5958. The country’s central bank delivered a 25-basis-point rate cut as expected but signaled that it may be nearing the end of its easing cycle—surprising some market participants.
