The US dollar remained largely unchanged on Monday, despite Moody’s lowering its credit rating outlook for the country from stable to negative. Moody’s cited increasing fiscal deficits and political standoffs in Washington as key factors in its decision.
The rating agency warned that without effective fiscal policy measures to reduce government spending or increase revenues, the US’ fiscal deficits will remain very large and significantly weaken debt affordability. This could lead to a higher cost of borrowing for the US government and businesses, which could in turn slow economic growth.
However, the dollar remains supported by hawkish remarks from Federal Reserve officials, who have signaled that they are willing to raise interest rates aggressively in an effort to bring down inflation. Fed Chair Jerome Powell said on Friday that the central bank is “not confident” that it has done enough to bring down inflation, suggesting that further rate hikes are likely.
The dollar also received some support from data showing that the US labor market remains resilient. The University of Michigan consumer sentiment index fell to a six-month low in November, but inflation expectations for the one- and five-year outlooks also went up, suggesting that consumers are still concerned about rising prices.
Overall, the dollar is likely to remain supported by hawkish Fed policy and a strong labor market, despite the credit rating downgrade from Moody’s. However, the US government will need to take steps to address its fiscal deficits in order to avoid further downgrades from other credit rating agencies.
The US dollar is likely to remain supported in the near term, despite the credit rating downgrade from Moody’s. However, the US government will need to take steps to address its fiscal deficits in order to avoid further downgrades and maintain investor confidence.