Fitch downgrades US government’s AAA credit rating to AA+, US Dollar retreats

Anil Panchal FXStreet

Global rating agency Fitch downgrades the US government's credit rating to AA+ from AAA on Tuesday. The rating giant cites anticipated fiscal deterioration over the next three years and a high and growing general government debt burden as the key catalysts for the stark move.

“There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” said Fitch in the official statement.

Following the announcement, US Treasury Secretary Janet Yellen crossed wires, via Reuters, while conveying her strong disagreement with the Fitch ratings’ decision to downgrade the US government by calling it, "arbitrary and based on outdated data."

On the same line, Reuters also conveyed comments from an anonymous Senior Official from the Biden Administration who termed the Fitch Ratings’ decision as one that ignores resilience and underlying US economic strength. The official also termed it as “Bizarre and baseless” while citing the possibility of seeing a major increase in borrowing costs due to the rate cut announcement.

Furthermore, the White House (WH) also reacts to the rate cut with strong disagreement while indirectly terming the move as a clear threat to the US economy by Republican Officials.

Market reaction

The news triggered a quick pullback in the US Dollar Index (DXY) from a three-week high of near 102.30 to 102.00 during late Tuesday, early Wednesday morning in Asia.

Also read: Forex Today: Dollar remains strong ahead of more jobs data

Author

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

AUD/USD meets support near 0.7150

AUD/USD comes under renewed and quite strong selling pressure ahead of the Asia opening bell on Friday, drifting back toward multi-day troughs near 0.7150, where it seems to have met some decent contention for now. The Aussie’s decline follows the inflation-reignited uptick in the Greenback in response to robust US factory-gate prices in August.

USD/JPY consolidates around 153.50 as bears turn cautious ahead of US inflation

USD/JPY stabilizes above 153.50 during the Asian session on Thursday, but remains near a seven-month low set earlier this week as hawkish BoJ repricing continues to underpin the Japanese Yen. Meanwhile, rising September Fed rate-hike bets and escalating US-Iran tensions help ease US Dollar selling pressure, offering some support to the currency pair ahead of US inflation figures.

Gold remains weak, retargets $4,350

Gold keeps the choppy price action on Thursday, now slipping back toward the $4,350 region per troy ounce amid the robust bounce in the US Dollar as well as rising US Treasury yields across the curve, particularly following US Producer Prices and ahead of Friday’s more relevant US CPI data.

Bitcoin holds steady on positive ETF flows despite short-term holders cashing in

Bitcoin's exchange-traded funds (ETF) demand regime has notably shifted, with 30-day net inflows reaching $21.9 billion, according to a Thursday post by CryptoQuant. The data suggests that the average Bitcoin held through spot ETFs is now in profit, with the realized price of the ETF cohort standing at roughly $72,000 to $73,000.

ECB recap: A hawkish hike despite downside growth risks

The European Central Bank (ECB) increased the Deposit Facility Rate to 2.50%, the Refinancing Rate to 2.65% and the Marginal Lending Facility to 2.90%, effective from September 16. The decision was accompanied by a clear warning that the outlook remains highly uncertain, with risks tilted to the upside for inflation and to the downside for growth.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.