FOREX-US dollar skids on concerns about implications of Trump tax bill

By Amanda Cooper and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK, May 21 (Reuters) - The U.S. dollar fell for a third day against a range of currencies on Wednesday, as investors worried about the Trump administration's tax cut and spending bill, with Republicans still divided over the details of the legislation.

U.S. President Donald Trump met with House Republicans on Tuesday and failed to convince his party's holdouts to back his sweeping tax bill. Republican hardliners continue to argue the bill does not sufficiently cut spending, according to House Speaker Mike Johnson.

Amid the bill impasse, the euro EUR=EBS rose 0.5% against the dollar to $1.1339, after earlier climbing to a two-week high.

"There's a general reallocation away from U.S. safe-haven assets, ex-equities, partly due to the budget bill," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey. "Even before the bill, we already had an acceleratingly poor debt to GDP ratio. Our spending has outpaced growth."

Trump's tax bill would add $3 trillion to $5 trillion to the country's debt, according to nonpartisan analysts.

Traders were also wary of U.S. officials potentially angling for a weaker dollar as part of independent trade deals on the sidelines of Group of Seven finance minister meetings underway in Canada.

Developments in Trump's global tariff war, which have swung currencies wildly in recent months, have slowed considerably this week, even as the clock ticks to the end of a 90-day tariff respite for U.S. trade partners in the absence of new deals.

While markets remain optimistic that the White House is eager to get trade flowing again on a sustained basis, talks with close allies, Tokyo and Seoul, appear to have lost momentum.

All this has combined to keep the dollar under pressure and U.S. Treasury yields rising, as the "sell America" theme continues to inform investment decisions, if in a less dramatic fashion than earlier this month.

The yen JPY=EBS strengthened against the dollar, which fell 0.6% to 143.64 yen, extending gains derived in part from a steep rise this week in domestic bond yields JP20YTN=JBTC.

Yields on 30-year Japanese government bonds surged to new records on Wednesday in the wake of a poor auction result that raised doubts over coming debt sales in the weeks ahead. Super-long yields have been on the rise, following U.S. Treasury yields higher and as concerns swirled about new fiscal stimulus ahead of a Japanese upper house election slated for July.

An auction of 20-year U.S. Treasuries later on Wednesday US20YT=RR might offer a litmus test of investor appetite for long-dated U.S. debt.

"Higher Japanese yields narrow the gap with U.S. Treasuries, reducing the incentive to hold the dollar," wrote Forex.com analyst Fawad Razaqzada in emailed comments.

"With Japanese 10-year bonds climbing and U.S. yields holding steady, the tide may be turning for dollar/yen. The currency pair which found short-lived relief around 140.00, looks vulnerable again."

The yen, along with safe-havens like the Swiss franc and gold, also got a lift after CNN on Tuesday reported that new intelligence gathered by the United States suggests Israel is making preparations to strike Iranian nuclear facilities.

A Moody's downgrade of the U.S. sovereign debt rating on Friday, meanwhile, may have had only a limited impact on markets, but it has added to the narrative of less faith in U.S. assets as safe havens. As a result, the dollar was down on the year against every major currency =USD.

Market participants also looked ahead to U.S.-Japan talks, with Japanese Finance Minister Katsunobu Kato later this week.

Kato said ahead of an expected meeting with U.S. Treasury Secretary Scott Bessent that talks on exchange rates would be based on their shared view that excessive volatility is undesirable.

In other currencies, the pound GBP=D3 hit its highest since February 2022 after data showed UK consumer inflation flared hotter in April than most economists expected, thereby clipping some of the Bank of England's scope to cut rates quickly.

Sterling was last up 0.4% at $1.3443.