Forex – Dollar Extends Gains but Outlook Remains Clouded

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© Reuters.  Dollar extends gains but outlook remains clouded© Reuters. Dollar extends gains but outlook remains clouded

Investing.com – The dollar moved higher against a currency basket on Tuesday, continuing its rebound from last week’s three year lows, but the outlook remained clouded by concerns over the outlook for the U.S. fiscal deficit.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.46% at 89.48 by 03:48 AM ET (08:48 AM GMT).

The index sank to a low of 88.15 on Friday, the weakest since December 2014.

The dollar has weakened in recent months as expectations for a faster pace of interest rates by the Federal Reserve have been offset by a range of concerns.

The greenback has been hit by worries that large corporate tax cuts and increased government spending will negatively impact the U.S. fiscal deficit, which is projected to balloon to near $1 trillion in 2019.

The tax cuts and spending plans could backfire by overheating an already strong economy and causing an unwanted pick-up in inflation.

Expectations for a faster rate of monetary tightening outside the U.S., which would lessen the divergence between the Fed and other central banks, have eroded the dollar’s relative yield attraction for investors.

The dollar was higher against the yen, with USD/JPY rising 0.42% to 107.03, extending its pullback from Friday’s 15-month lows of 105.55

The euro was lower, with EUR/USD down 0.3% to 1.2370, retreating further from Friday’s three year high of 1.2554.

Sterling was also lower, with GBP/USD shedding 0.26% to trade at 1.3962.

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