SINGAPORE (Reuters)

The US dollar faced weakness on Friday, on track to decline against the euro and yen for the first time in five weeks. This trend is driven by concerns surrounding US financial issues, prompting investors to seek safer options.

Following Moody’s downgrade of US debt last week, investor focus shifted to the massive $36 trillion debt and President Trump’s tax bill, which he described as “a big and beautiful bill.” This legislation passed narrowly in the Republican-led House and is expected to face several weeks of debate in the Senate, leaving investor sentiment fragile in the short term.

The euro increased by 0.36% to $1.132 on Friday, marking a 1.2% rise for the week after experiencing four consecutive weeks of decline as the dollar struggled due to tariff suspensions recently.

Despite this, the euro has surged 9% in 2025, emerging as a key beneficiary in the current market chaos caused by tariffs, as many investors are moving away from the dollar in search of safer alternatives.

Mo Sion Sim, a currency strategist at the Bank of Singapore, commented, “This week, the emphasis on fiscal risk has transitioned from tariffs to broader financial concerns, causing significant market tension.” He also noted that the financial trajectory of the US has led to questions about its future progress.

The dollar index, which measures the strength of the dollar against six other currencies including the euro and yen, fell by 1.35% this week and was down by 0.3% at 99.614.

In spite of a sudden bond sale from the US Treasury earlier in the week, the 30-year bond yield climbed above 5% on Friday, nearing a 19-month peak. This level is reminiscent of rates not seen since mid-2007, approaching the high of 5.179% recorded in October 2023.

As investors continue to pull away from US assets, like in previous months, the rising yields do not seem to be giving the dollar any support. Chris Weston, research director at Pepperstone, remarked, “The market’s reaction this week highlights growing unease about financial recklessness, hefty deficit spending, and rising interest rates, which aren’t necessarily driven by positive growth dynamics.” He added that the combined effect of increased inflation expectations could deter foreign buyers from engaging with the market.

In April, Japan experienced its most rapid annual core inflation increase in over two years, raising the likelihood of another rate hike by the end of the year. Consequently, the yen appreciated to $143.47.

This situation underscores the dilemma for the Bank of Japan, which must contend with persistent price pressures from ongoing food inflation while also facing economic challenges stemming from Trump’s tariffs.

Japanese government bonds reached record highs this week but stabilized by Friday. Meanwhile, the Swiss franc rose slightly to 0.8264 per dollar, up 1.2% over the week after facing losses for two consecutive weeks.

Additionally, the Australian dollar improved to $0.6434, an increase of 0.39%. The Reserve Bank of Australia recently lowered its cash rate to 3.85%, the lowest in two years, due to a dimmer global outlook and easing inflation domestically.

The New Zealand dollar also strengthened by 0.3% to $0.5916, up 0.6% for the week.