US dollar weakens after Moody's downgrades US sovereign credit rating

Although the US dollar has been somewhat stable in recent sessions as investors were reassured by a truce in the US-China trade war, the greenback has come under renewed selling pressure after Moody's downgraded the US sovereign credit rating by one notch.

George Vessey, chief macro and foreign exchange strategist at payments firm Convera, predicts the US dollar is likely to continue to depreciate, in terms of valuation.

The sell-off in US assets has returned after Moody's downgraded the country's credit rating, he added.

The U.S. dollar index, which measures the greenback against a basket of major currencies, has fallen 10.6 percent from its January peak, one of its steepest declines in three months, according to data from the Commodity Futures Trading Commission (CFTC).

This has led speculators to bet heavily on the dollar's weakness, with the total value of shorts exceeding purchases by $17.32 billion, close to the highest spread since July 2023.

Part of the bearish sentiment around the US dollar is due to the currency trading at relatively high valuations.

In January, the dollar index was 22% above its 20-year average of 90.1. It is currently hovering around 10% above its 20-year average.

The dollar is likely to weaken further. While recent trade deals may have calmed markets, they do not address the long-term confidence issues facing the U.S., said Steve Englander, global head of G10 FX research at Standard Chartered in New York.

Investors are also concerned about the long-term financial health of the United States. Analysts say Trump’s sweeping tax cuts will add between $3 trillion and $5 trillion to the $36.2 trillion U.S. national debt over the next 10 years.

However, one argument against a weakening dollar is the resilience of the US economy . If economic growth exceeds expectations, the US Federal Reserve (FED) could continue to keep interest rates unchanged for a longer period of time, thereby supporting the dollar.

Jack McIntyre, portfolio manager at Brandywine Global, noted that consumer activity in the US has so far remained strong despite predictions of a possible economic slowdown.

Still, he and many others tend to sell when the dollar rises rather than bet on a recovery.

Source: https://nhandan.vn/dong-usd-suy-yeu-sau-khi-moodys-ha-xep-hang-tin-dung-quoc-gia-cua-my-post881115.html