US dollar gains, sentiment still frayed; euro falters

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar advanced on Thursday after three days of losses, lifted partly by the passage of President Donald Trump's bill for huge tax and spending cuts by the House of Representatives, as the euro stumbled following data painting a bleak economic picture for the euro zone.

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

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 on it in the Republican-led Senate.

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.

In afternoon trading, the dollar edged up 0.1% to 143.75 yen after earlier dropping to 142.80 yen, its weakest level since May 7.

The euro 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.

In contrast, U.S. business activity picked up in May due in part to the truce in the trade war between Washington and China. S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 52.1 this month from 50.6 in April. A reading above 50 indicates expansion in the private sector.

Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto, said the dollar got a moderate push higher from the passage of the tax bill, but the greenback was already rallying when the legislation got the U.S. House green light amid the soft European PMI.

"Today feels like a bit of a reversal of yesterday's de-dollarization trade. The stronger-than-expected U.S. PMIs helped unwind some of that de-dollarization trade," he added.

JOBLESS CLAIMS SHOW STABLE LABOR MARKET

A low weekly jobless claims reading also 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.

"It's clear that traders are still leaning much more risk-averse than risk-forward at the moment even with a bit of a risk rally through this month, and as we move toward month-end the dollar's future is far from certain," said Helen Given, director of trading at Monex USA in Washington.

In other currency pairs, sterling was flat against the dollar at $1.3433, not far from Wednesday's three-year peak of $1.3468 after hot inflation dampened expectations for rate cuts from the Bank of England.

Versus the Swiss franc, the dollar gained 0.5% to 0.8286 francs.

The dollar index, which measures the U.S. currency against six peers, rose 0.3% to 99.905, above Wednesday's two-week low of 99.333.

Bitcoin climbed as high as $111,965.62, a fresh all-time peak and a 3.4% increase from Wednesday's close.

"Investor sentiment has clearly shifted in favor 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."

Currency bid prices at 22 May​ 07:55 p.m. GMT              

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 99.881 99.594 0.3% -7.94% 100.11 99.438

Euro/Dollar 1.1285 1.133 -0.39% 9% $1.1345 $1.1255

Dollar/Yen 143.93 143.68 0.3% -8.41% 144.31 142.815

Euro/Yen 162.43​ 162.75 -0.2% -0.48% 163.37 161.82

Dollar/Swiss 0.8282 0.8252 0.39% -8.72% 0.8307 0.8235

Sterling/Dollar 1.3427 1.342 0.06% 7.36% $1.344 $1.3392​

Dollar/Canadian 1.3863 1.3861 0.03% -3.58% 1.3889 1.3848

Aussie/Dollar 0.6409 0.6438 -0.4% 3.63% $0.6459 $0.6408

Euro/Swiss 0.9344 0.9348 -0.04% -0.52% 0.9355 0.9331

Euro/Sterling 0.8404 0.8441 -0.44% 1.58% 0.8449 0.8398

NZ Dollar/Dollar 0.59 0.5939 -0.63% 5.47% $0.5941 0.5895

Dollar/Norway 10.1914​ 10.1188 0.72% -10.33% 10.2186 10.1539

Euro/Norway 11.4991 11.524 -0.21% -2.28% 11.54 11.4948

Dollar/Sweden 9.6342 9.5632 0.74% -12.55% 9.6477 9.558

Euro/Sweden 10.871 10.8406 0.28% -5.2% 10.8797 10.83

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Samuel Indyk in London and Kevin Buckland in Tokyo; Editing by Ed Osmond and Hugh Lawson)