Dollar Plunges as Moody’s Downgrades U.S. Credit Rating
1717 ET – Treasury yield rise and dollar weakens after Moody’s cuts the U.S.’s long-term issuer and senior unsecured ratings to Aa1 from Aaa, on worries about large fiscal deficits and growing debt costs. The move strips the U.S. of its last remaining triple-A credit rating from a major ratings firm. The 10-year Treasury yield climbs to 4.49%, after closing at 4.44% and the dollar weakens against the yen and euro. (
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Dollar Faces Further Falls as Correlation to Risk Shifts
1336 GMT — A shift away from the typical relationship between risk aversion and the strength of the dollar may result in continued depreciation for the currency, according to Neuberger Berman analysts. They suggest that U.S.-based investors might not view the dollar anymore as a secure refuge asset or consider unhedged positions in dollars beneficial for diversifying portfolios. As such, these investors must assess whether partial or complete protection against dollar fluctuations should be implemented. Hedging activities put downward stress on the value of the dollar since this involves selling off dollars and purchasing domestic-currency assets instead.
The Dollar Index (DXY) has dipped slightly by 0.1%, now standing at 100.763.
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Non-American investors will also need to weigh how effective hedging strategies aimed at mitigating risks associated with holding US dollars would prove compared to the financial burden and practical challenges involved.
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Euro Could Extend Gains on Bets Against Dollar
0821 GMT – The euro might maintain its slight upward trend relative to the dollar as investors keep betting against the US currency, according to an analysis from ING economist Francesco Pesole. There appears to be growing agreement among markets and forecasters predicting additional rate reductions by the European Central Bank later this year. Nevertheless, factors point more toward a weakening of the dollar. “While we consider €1.120 to be a solid support level for the near term, the tendency leans toward pushing past €1.130 instead of dropping below €1.110 due to ongoing negative sentiment toward the dollar,” notes Pesole. Currently, the euro has risen by 0.2%, trading at $1.1208.
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Sterling May Decline Relative to the Euro as Risk Appetite Wanes
0740 GMT – The pound is expected to lose value compared to the euro due to continuous uncertainties regarding U.S. tariffs affecting overall market confidence, according to Kirstine Kundby-Nielsen from Danske Bank in her report. She explains that “a financial climate marked by high levels of ambiguity, expanding loan yield differences, and a detrimental connection with a weakening US dollar” tends to push down the British currency.” Given Britain’s significant balance-of-payments shortfall, the pound becomes more susceptible during periods where foreign investments decrease. Consequently, this leaves the pound open to decline relative to the euro amid worsening worldwide economic sentiments. Within half a year, Danske anticipates the euro reaching parity at 0.87 GBP. At present, it shows an increase of 0.1%, trading around 0.8418.
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The Dollar Drops as Inflation Concerns Show Signs of Subsiding
0632 GMT — The value of the dollar decreases due to recent indications suggesting reduced pricing pressure, which increases anticipation for additional interest rate reductions by the Federal Reserve. According to data released on Thursday, the U.S. Producer Price Index declined more than expected in April. This followed lower-than-projected U.S. consumer prices reported earlier this week. Additionally, declining oil prices contribute to the perception that inflationary forces are weakening, according to an analysis from Deutsche Bank noted in their report. “As investor concerns over inflation ease, they have increased their projections for potential Fed rate cuts,” states the report. As a result, the DXY dollar index drops by 0.3%, settling at 100.576.
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Investors Might Boost Safeguards Amid Declining Currency Value
0653 GMT – Given that global investment portfolios have significant exposure to U.S. firms, investors might opt for greater safeguards against potential declines due to a depreciating dollar, according to Swissquote Bank analyst Ipek Ozkardeskaya in her report. She suggests this trend may put downward pressure on the value of the dollar over the coming months. Previously, investors did not see a necessity to protect themselves from a falling dollar since during periods of market turbulence, the currency usually gains strength as funds move towards safer assets. “However, lately we’ve observed the dollar losing ground even when volatility was increasing,” she notes, adding that higher volatility also raises hedging expenses, resulting in an atypical inverse relationship between these two factors. This presents a considerable challenge for investors, she states. At this time, the DXY dollar index drops by 0.3%, standing at 100.570.
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