FOREX-US dollar modestly recovers, but sentiment still tense; euro wobbles

By Gertrude Chavez-Dreyfuss and Samuel Indyk

NEW YORK/LONDON, May 22 (Reuters) - The U.S. dollar advanced on Thursday after three days of losses, as the House of Representatives narrowly passed President Donald Trump's bill for huge tax and spending cuts, even as the euro stumbled after data painted a bleak economic picture for the euro zone.

Bitcoin BTC=, meanwhile, pushed to a new all-time high, partly as investors sought out alternatives to U.S. assets

But Trump's sweeping tax bill has been the market's focus and its passage has been met partly with relief and partly with caution. The bill is set to add to the country's ballooning debt pile. The market is now looking at weeks of debate in the Republican-led Senate on it.

The non-partisan Congressional Budget Office estimates the bill will add $3.8 trillion to the $36.2 trillion in U.S. debt over the next decade.

"The dollar's up a touch today, but market nerves are pretty clearly quite frayed and all movements over the last few sessions have been very cautious," said Helen Given, director of trading at Monex USA in Washington.

"The House's passage of the Trump administration's tax and spending bill is giving the buck a bit of a boost, but most of the flow we're looking at is more a reversal of substantial dollar shorts than anything else."

In late morning trading, the dollar edged up 0.1% to 143.75 yen JPY=EBS after earlier dropping to 142.80, its weakest level since May 7.

A low weekly jobless claims reading gave the dollar a bit of a lift as the labor market continued to show stability. The weekly report showed unemployment rolls approaching levels last seen in late 2021.

Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 227,000 for the week ended May 17. Economists polled by Reuters had forecast 230,000 claims for the latest week.

Meanwhile, a lacklustre 20-year bond sale on Wednesday reinforced the "Sell America" narrative and weighed on the dollar overnight. The soft auction also put some pressure on Wall Street as well, with traders already jittery after Moody's cut its triple-A U.S. credit rating last week.

The euro EUR=EBS, meanwhile, fell 0.3% against the dollar to $1.1293, after rising on Wednesday for a third straight session.

Euro zone business activity unexpectedly contracted this month, HCOB's preliminary composite Purchasing Managers' Index showed on Thursday.

"The underwhelming release bodes poorly for the near-term economic prospects on the continent, with the effects of Donald Trump's tariffs slowly feeding through and the spectre of a trade deal seemingly unlikely at this juncture," said Harry Woolman, analyst at Validus Risk Management.

Sterling GBP=D3 was up 0.1% at $1.3434 but remained close to a three-year peak reached on Wednesday after hot inflation dampened expectations for rate cuts from the Bank of England.

The dollar index =USD, which measures the U.S. currency against six peers, rose 0.2% to 99.844, a little above yesterday's two-week low of 99.333.

Bitcoin BTC= climbed as high as $111,862.98, a fresh all-time peak and a 3.3% increase from Wednesday's close.

"Investor sentiment has clearly shifted in favour of Bitcoin over traditional assets, with capital flows into BTC accelerating sharply," wrote Hina Sattar Joshi, director at TP ICAP – Digital Assets. "This week saw another surge in demand for bitcoin ETFs (exchange traded funds), reinforcing the broader trend."