- Safe-haven demand lifts euro, yen and swiss franc
- Dollar remains under pressure as fiscal outlook fears grow
- Trump's tax bill heads to Senate
- Treasuries steady after a brutal selloff this week
SINGAPORE, May 23 (Reuters) - The U.S. dollar was weaker on Friday, poised to make its first weekly drop in five weeks against the euro and the yen as worries over the United States' worsening fiscal health sent investors scurrying for safe havens.
After Moody's last week downgraded its U.S. debt ratings, investor attention this week has honed in on the country's $36 trillion debt pile and U.S. President Donald Trump's tax bill that could add trillions of dollars more to it.
Dubbed by Trump as a "big, beautiful bill", it narrowly passed Republican-controlled U.S. House of Representatives and now heads to the Senate for what is likely to be weeks of debate, keeping investor sentiment fragile in the near term.
The euro rose 0.36% to $1.132 on Friday and is set for a 1.2% gain for the week after four straight weeks of losses as a pause in tariffs buoyed the dollar in recent weeks.
The euro, though, is up 9% in 2025, with the single currency emerging as the early winner of the tariff-induced market tumult and investors fleeing the dollar, looking for safer bets.
"This week we have seen a shift in the focus from tariffs to fiscal risks. That has caused a lot of nervousness in the market," said Moh Siong Sim, currency strategist at Bank of Singapore.
"The fiscal trajectory in the U.S. has gotten to a point where the market is questioning whether 'can this go on?'."
The dollar index , which compares the U.S. currency against six other units, including the yen and euro, is set for a 1.35% decline this week and was down 0.3% at 99.614.
That's despite a steep selloff in U.S. Treasuries at the start of the week. The 30-year bond yield stayed above 5% in Asian hours on Friday, hovering near 19-month highs. It is close to October 2023's high of 5.179%, a break past which would take it to its highest since mid-2007.
The elevated yield hasn't underpinned the dollar as investors flee U.S. assets in a "Sell America" move similar to last month.
"What has become quite stark this week is the reaction function in broad markets to the rise in U.S. long-end Treasury yields," said Chris Weston, head of research at Pepperstone.
Weston said higher yields are not being driven by improved growth dynamics, but by concerns of increasing fiscal recklessness, deficit spending and the perception of higher interest expenses.
"Add in the toxic mix of higher inflation expectations ... and the net effect has been a strong rise in 'term premium' and the would-be foreign buyers simply staying out of the market."
The yen was strengthened to 143.47 per dollar, on course for a 1.5% rise for the week, after Japan's core inflation accelerated at its fastest annual pace in more than two years in April, raising the odds of another interest rate hike by year-end.
The data underscores the quandary facing the Bank of Japan which must grapple with price pressures from persistent food inflation as well as economic headwinds from Trump's tariffs.
Super-long Japanese government bonds have also scaled record highs this week, although they were steady on Friday.
The Swiss franc was slightly stronger at 0.8264 per dollar, also set for a 1.2% rise for the week after two weeks of losses.
Elsewhere, the Australian dollar last fetched $0.6434, up 0.39%. Australia's central bank on Tuesday cut its cash rate to a two-year low of 3.85%, citing a darker global outlook and cooling inflation at home.
New Zealand dollar was 0.3% stronger at $0.5916, set for a 0.6% rise for the week.
Reporting by Ankur Banerjee in Singapore; Editing by Edwina Gibbs and Stephen Coates
Source: Reuters