U.S. Credit Rating Gets Downgraded

2023-08-02 | Commodities , Current Affairs , Forex , Futures , Precious Metals , Securities , Spot Indices

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Today’s News

Fitch Ratings has downgraded the United States’ long-term foreign currency ratings to AA+ from AAA, reflecting on an expected fiscal deterioration over the next three years as well as a high and growing general government debt burden.

The downgrade follows a debt ceiling agreement in June that came after months of political turmoil, which ultimately led to the government’s decision to raise the USD 31.4 trillion debt ceiling.

“In Fitch’s view, 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,” the rating agency said in a statement.

Other related news include:

Biden Administration Firmly Objects Rating Downgrade

Biden administration officials were adamant on objecting the decision by Fitch Ratings to strip the U.S. of its top-tier credit rating yesterday and sought to control the political and economic fallout.

Source: Politico

The decision by Fitch came two months after a bitter standoff on raising the US debt limit that underscored the difficulty Washington has in overcoming partisan warfare to perform the basic functions of government.

Treasuries Maintain Demand And Persistence

Investors will likely maintain their pace to scoop up Treasuries despite Fitch Ratings’ move to cut the U.S.’ credit rating. The downgrade may spur some short-term volatility but nothing too drastic to note, according to analysts.

Source: CNBC

Demand for U.S. bonds is likely to remain strong as there are few markets that are large and safe enough to rank as an alternative, the analysts said. The dollar’s initial weakness is also not expected to last, they added.

Asia Stocks Dips After Rally And Fitch Fallout

Asia stocks fell as Fitch Ratings’ downgrade of the U.S. sovereign rating sapped risk sentiment following a strong recent run, while boosting demand for haven assets.

Source: REUTERS

The rating cut was announced before the markets opened in Asia. It initially pushed the Treasuries higher before the moves were stabilized, leaving the two-year yield down by 1 basis point. The yen and the Swiss franc advanced against the dollar.

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