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

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disagreement with the Fitch ratings’ decision to downgrade the US government by calling it, "arbitrary and based on outdated data."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