TOKYO (Reuters) – On Monday, the US dollar slid to weekly lows, while the yen, seen as a safe haven, gained ground as markets grappled with a surprising downgrade of US government credit ratings alongside growing trade tension concerns. Sentiment remains shaky.
The Australian dollar rebounded after a three-day slump, anticipating a significant quarter-point cut in the Reserve Bank of Australia’s policy announcement on Tuesday.
Moody’s downgraded the US’s top sovereign credit rating by one notch on Friday, becoming the last major rating agency to do so, citing worries over the increasing $36 trillion national debt.
This downgrade contributed to the dollar’s decline against major currencies after a four-week winning streak, as improved relations with China alleviated some recession fears globally.
The greenback dropped 0.6% to 144.80 yen, marking its lowest point since May 9, while the euro fell 0.3% to 1.1199.
“This decision seems to catch up with Fitch’s announcements from previous years. Even though it’s late, it might still impact those bearish on the dollar,” an analyst noted.
Another point made was that while this downgrade could be viewed as slow-moving, it still deserves attention given its implications.
In a television interview on Sunday, U.S. Treasury Secretary Scott Bescent mentioned that President Trump is likely to impose tariffs on trading partners he perceives as uncooperative.
However, a report from the Financial Times revealed that the US has begun serious trade negotiations with the European Union, potentially breaking a longstanding deadlock, which raises hopes for future agreements after Washington’s recent framework deal with the UK.
Trump has pointed to possible agreements with India, Japan, and South Korea, though discussions with Japan seem to be stalled over automotive tariffs.
Ray Atrill, who leads Forex Strategy for the National Bank of Australia, commented on the issue, suggesting, “There’s considerable doubt about the resilience of the US economy.”
With bipartisan support from major Congressional committees, Trump is poised to push through a measure that might add between $3 trillion and $5 trillion to the national debt over the coming decade.
The dollar fell 0.2% to 0.8358 Swiss Francs, another safe currency, while sterling gained 0.1% to $1.3297.
“Concerns about US growth and the administration’s policy agenda seem to be challenging the dollar’s safe-haven status,” stated Mahjabeen Zaman, head of Forex Research at ANZ.
The Australian dollar increased by 0.1% to $0.6413, reversing more than a 1% loss from the previous three days.
Market expectations indicate a quarter-point rate cut to the Reserve Bank’s current cash rate of 4.10% on Tuesday.
The guidance from central banks is becoming increasingly crucial, especially as investors temper their expectations for significant rate cuts following a halt to US tariffs from China and strong Australian employment figures.
New Zealand’s Kiwi dollar gained 0.2% to $0.5890.
Bitcoin surged 2.8%, reaching $107,060.46, marking its highest point since January and coming close to its all-time record of $109,071.86 from earlier in the same month.
