Fitch Ratings late Monday was the latest agency to maintain its stance on U.S. debt, after a special U.S. debt-cutting committee said they had failed to reach a deal to reduce the federal budget deficit.
Earlier Monday, Standard & Poor’s and Moody’s had both held their ratings unchanged.
The affirmation of U.S. ratings “caused all-round relief” during Asian trading hours, said Sebastien Galy, currency strategist at Societe Generale. Concerns of failure by the U.S. debt committee had led stocks on Wall Street sharply lower on Monday, with the Dow Jones Industrial Average slumping 2% Monday, while investors sought refuge in both the dollar and the yen.
The rating agencies’ backing, however, caused a reversal of those trends. The dollar index (IFUS:DX-Y.NYB), which measures the U.S. unit against a basket of six major currencies, declined to 78.208 from 78.267 late Monday, according to FactSet Research. Against the yen, the dollar fell to ¥76.88 from ¥76.97 late Monday. The euro (ICAP.C:EURUSD) rose to $1.3529 from $1.3503, also benefiting from investors’ embrace of risk.
However, the sovereign-debt crisis in Europe is likely to remain at the forefront of concerns in the near term, said Kathy Lien of GFT Forex.
Moody’s on Monday warned that French debt could lose its triple-A rating given the increase in borrowing costs and slowing growth.
“A downgrade of France would cause far more carnage on the market than a downgrade of Spain or Italy even though it would all be extremely bad on the market,” Lien said in a note. “The resilience of the euro probably has more to do with short covering and position squaring ahead of an important holiday in the U.S.,” she said. Meanwhile, S&P on Tuesday said Spain’s double-AA minus credit rating wasn’t affected by the results of Sunday’s general election, which saw the opposition center-right Popular Pary win an absolute majority.
Meanwhile, the Indian rupee (ICAP.C:USDINR) firmed slightly, trading at 52.63 against the dollar. On Monday, it fell more than 1.6% to reach 52.21, its lowest level since March 2009 as investors dumped high-yielding currencies to seek the safe haven of the dollar. While interest rates in the U.S. are near zero, the Reserve Bank of India has been hiking rates since March 2010.
The rupee could remain under pressure, however, due to dollar demand by Indian oil importers near the end of November, according to Mumbai-based Angel Broking.
(Sources: Nick Godt / Markets / Market Watch / Independent sources)
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