The US dollar fell sharply against major world currencies after Moody’s downgraded the US credit rating for the first time in a long time, amid concerns over the country’s debt, which has now reached US$36 trillion. Following the move, global markets were shaken with the US dollar falling sharply against the yen, euro and Swiss franc, while US bonds and stocks also came under severe pressure. While the S&P 500 futures market fell more than 1%, the US 10-year bond yield jumped, reflecting investors starting to question the US dollar’s safe haven status.
The downgrade came as President Donald Trump threatened to impose tariffs on trading partners that did not negotiate “sincerely”. China reacted quickly by urging the US to take more responsibility to maintain the stability of the global financial system. Despite a glimmer of hope with reports of serious trade talks between the US and the EU, market sentiment remained cautious on concerns of a new wave of trade wars.
In other developments, Trump is also close to passing a massive tax cut bill that is expected to add up to $5 trillion to the national debt over a decade. The move raises more questions about US fiscal policy and its ability to maintain global investor confidence in the US dollar and its financial markets.
Meanwhile, currencies such as the Japanese yen, the Swiss franc, and the Australian and New Zealand dollars have seen significant gains, signaling a shift in investors to assets considered more stable. Economists have warned that the US dollar's reputation as a safe haven currency is now faltering. If US fiscal and trade policies continue to create uncertainty, the pressure on the US dollar could be prolonged.
