The U.S. dollar weakened to a one-week low against the safe-haven Japanese yen on Monday as global markets absorbed the surprise downgrade of the U.S. government’s sovereign credit rating by Moody’s. This downgrade, combined with ongoing trade tensions, weighed heavily on investor sentiment. The dollar fell as much as 0.6% to 144.80 yen, marking its lowest level since May 9, reversing gains from prior weeks fueled by optimism over U.S. trade negotiations.
Highlights:
USD fell 0.6% to 144.80 yen, lowest since May 9.
Downgrade triggered by Moody’s citing U.S. $36 trillion debt concerns.
Trade friction concerns further pressured dollar sentiment.
Australian Dollar Gains Ahead of Reserve Bank of Australia Policy Meeting
The Australian dollar rebounded modestly by 0.1% to $0.6413 following three consecutive days of declines. Market participants await Tuesday’s Reserve Bank of Australia (RBA) policy announcement, with widespread expectations of a quarter-point interest rate cut from the current 4.10%. Slowing inflation and rising global risks have prompted investors to price in this easing, although recent robust employment data has tempered expectations of further rapid cuts.
Highlights:
AUD rose 0.1% to $0.6413 after three days of losses.
Markets expect a 25 basis point cut from RBA on Tuesday.
Slowing inflation supports potential rate easing; strong jobs data moderates outlook.
Moody’s Downgrade Seen as a Catch-Up but May Strengthen Dollar Bears
Moody’s decision to lower the U.S. credit rating by one notch was largely viewed as catching up to prior downgrades by S&P in 2011 and Fitch earlier in 2023. Despite the slow-moving nature of this rating erosion, experts warn it could add pressure on the U.S. dollar by emboldening bearish sentiment. Paul Mackel, global head of FX research at HSBC, cautioned that assumptions about the downgrade’s minimal impact on the dollar should be approached carefully.
Highlights:
Moody’s downgrade aligns with previous actions by S&P and Fitch.
Potential to reinforce bearish views on USD despite gradual rating erosion.
Analysts advise caution in underestimating downgrade impact.
U.S. Trade Negotiations Provide Mixed Signals Amid Tariff Threats
While Treasury Secretary Scott Bessent confirmed President Trump’s intent to impose tariffs on trading partners deemed unwilling to negotiate in “good faith,” signs of progress in U.S. trade talks offered a more optimistic counterbalance. Reports emerged of serious discussions between the U.S. and European Union following a framework agreement reached with the United Kingdom earlier this month. However, trade talks with Japan, particularly over car tariffs, remain complicated, and the broader market maintains skepticism about the likelihood of swift trade deal resolutions.
Highlights:
Trump administration maintains threat of tariffs on non-cooperative partners.
U.S.-EU trade talks show signs of renewed engagement.
Ongoing hurdles in talks with Japan create market uncertainty.
Dollar Under Pressure as U.S. Growth Risks and Policy Agenda Face Scrutiny
Concerns around U.S. economic growth and policy direction have challenged the dollar’s traditional status as a safe-haven currency. Mahjabeen Zaman, head of foreign exchange research at ANZ, noted that risks related to the U.S. growth outlook and administration policies have called into question the greenback’s appeal during times of market stress. The dollar also slipped 0.2% against the Swiss franc to 0.8358, another safe-haven currency, while the British pound gained 0.1% to $1.3297.
Highlights:
U.S. growth and policy uncertainties weigh on dollar safe-haven status.
USD declined 0.2% against Swiss franc to 0.8358.
Sterling strengthened 0.1% to $1.3297 amid mixed market sentiment.
New Zealand Kiwi and Bitcoin Also See Gains Amid Market Volatility
The New Zealand dollar, or kiwi, edged higher by 0.2% to $0.5890 amid the shifting currency landscape. Meanwhile, Bitcoin experienced a notable surge, jumping as much as 2.8% to $107,060.46—its highest level since January when it briefly touched an all-time peak of $109,071.86. This rise underscores growing investor interest in cryptocurrencies as alternative assets during periods of market uncertainty.
Highlights:
NZD rose 0.2% to $0.5890.
Bitcoin surged 2.8% to over $107,000, nearing its January all-time high.
Crypto assets gain traction amid traditional market volatility.
