US Dollar plunged after Moody's downgraded US credit rating

The US Dollar fell back from last week’s highs as investors digested Moody's downgrade of the US government’s top credit rating from Aaa to Aa1 late on Friday.

Moody's announced that it had downgraded the US' sovereign credit rating to 'AA1' from 'AAA', citing concerns about the unsustainable deficit.

This means that all three rating agencies Fitch, Moody’s, and Standard & Poor’s have now stripped the US of its top rating on deficit risks.

The greenback has showed a sustained weakness against its major peers like the Euro, Yen and GBP, driven by renewed trade fears, along with fresh concerns about the US fiscal health.

The lack of progress in US-China trade relations and the political uncertainty in the US seem to be causing the USD to lose interest, falling to a weekly low of $1.1350 against the Euro in reaction to Moody’s move.

Meanwhile, the gold price broke above the key $3,300/oz level and the Japanese Yen rebounded to a weekly high of ¥143.50 after Moody's downgrade of the US credit rating increased demand for safe havens.

The downgrade came after a winning week on Wall Street, where investors welcomed the White House’s deal with China to temporarily slash levies by 115% for 90 days.

The tech-heavy Nasdaq Composite led the way, surging more than 7%, while the broad S&P 500 jumped over 5% and posted a five-day winning streak.

The blue-chip Dow gained more than 3% last week, re-entering into positive territory for 2025.

Moody’s downgrade:

On Friday, Moody’s Ratings downgraded the U.S. sovereign credit rating by one level from Aaa to Aa1, citing mounting challenges in funding the federal budget deficit and the increasing cost of refinancing debt in a high-interest-rate environment. (Source: cnbc.com)

"Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's said.

(Source: ratings.moodys.com)

Moody’s had been a holdout in keeping U.S. sovereign debt at the highest credit rating possible and brings the 116-year-old agency into line with its rivals. Standard & Poor’s downgraded the U.S. to AA+ from AAA in August 2011, and Fitch Ratings also cut the U.S. rating to AA+ from AAA, in August 2023.