U.S. Dollar Plummets Amid Fiscal Concerns and Proposed Tax Bill

The U.S. dollar experienced a significant decline in May 2025, marking its worst week since early April. The currency depreciated by 0.8% on Friday and 1.9% over the week, reflecting growing investor concerns over the nation's fiscal health. This downturn coincided with the narrow passage of President Donald Trump's $3.8 trillion tax and spending bill in the House of Representatives, which now faces revisions in the Senate. The bill proposes extending the 2017 income tax cuts, reducing taxes on tips and overtime, and cutting welfare programs such as Medicaid. The Congressional Budget Office estimates that the bill could add over $3 trillion to the national debt over the next decade.

The proposed tax and spending bill has raised significant concerns about the United States' fiscal sustainability. The Committee for a Responsible Federal Budget estimates that the bill could add over $3 trillion to the national debt over the next decade. This projection has intensified fears of sustained high bond yields and potential credit rating downgrades. Moody's recent downgrade of the U.S. credit rating has further highlighted these concerns.

The weakening of the dollar has been accompanied by outflows from U.S. securities and signs of de-dollarization, as investors reevaluate their exposure to U.S. assets. Analysts suggest that these developments indicate deeper concerns about fiscal sustainability and potential structural issues within the U.S. economy.

The current fiscal trajectory is reminiscent of previous periods of significant tax cuts and increased spending. The Tax Cuts and Jobs Act of 2017, for example, was projected to increase the federal debt by $1.8 trillion through 2029. Extending these cuts, as proposed in the current bill, could add an additional $4.6 trillion to the deficit over the next decade.

The proposed cuts to welfare programs such as Medicaid have raised concerns about the potential impact on vulnerable populations. Critics argue that while tax cuts may stimulate economic growth, the resulting increase in the national debt and reduction in social safety nets could exacerbate income inequality and strain public services.

Analysts suggest that these developments indicate deeper concerns about fiscal sustainability and potential structural issues within the U.S. economy. The weakening of the dollar has been accompanied by outflows from U.S. securities and signs of de-dollarization, as investors reevaluate their exposure to U.S. assets.

The current fiscal trajectory is reminiscent of previous periods of significant tax cuts and increased spending. The Tax Cuts and Jobs Act of 2017, for example, was projected to increase the federal debt by $1.8 trillion through 2029. Extending these cuts, as proposed in the current bill, could add an additional $4.6 trillion to the deficit over the next decade.

The proposed cuts to welfare programs such as Medicaid have raised concerns about the potential impact on vulnerable populations. Critics argue that while tax cuts may stimulate economic growth, the resulting increase in the national debt and reduction in social safety nets could exacerbate income inequality and strain public services.

Analysts suggest that these developments indicate deeper concerns about fiscal sustainability and potential structural issues within the U.S. economy. The weakening of the dollar has been accompanied by outflows from U.S. securities and signs of de-dollarization, as investors reevaluate their exposure to U.S. assets.

The current fiscal trajectory is reminiscent of previous periods of significant tax cuts and increased spending. The Tax Cuts and Jobs Act of 2017, for example, was projected to increase the federal debt by $1.8 trillion through 2029. Extending these cuts, as proposed in the current bill, could add an additional $4.6 trillion to the deficit over the next decade.

The proposed cuts to welfare programs such as Medicaid have raised concerns about the potential impact on vulnerable populations. Critics argue that while tax cuts may stimulate economic growth, the resulting increase in the national debt and reduction in social safety nets could exacerbate income inequality and strain public services.