Dollar shrugs off Fitch's U.S. credit rating downgrade, yen rallies
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[August 02, 2023] By
Harry Robertson and Rae Wee
LONDON/SINGAPORE (Reuters) - The dollar barely budged on Wednesday as
investors shrugged off Fitch's U.S. credit rating downgrade, while the
yen made up ground as traders assessed the Bank of Japan's approach to
monetary policy.
The agency on Tuesday downgraded the United States to AA+ from AAA in a
move that drew an angry response from the White House and surprised
investors, coming despite the resolution two months ago of a debt
ceiling crisis.
It cited likely fiscal deterioration over the next three years and
repeated down-the-wire debt ceiling negotiations that threaten the
government's ability to pay its bills.
There was little reaction in the world's most traded currency pair, with
the euro down less than 0.1% against the dollar at $1.098.
The dollar index, which tracks the currency against six peers, stood
0.23% higher at 102.24, just shy of Tuesday's three-week high of 102.43.
Analysts said the dollar was likely benefiting from its status as a safe
haven, as investors' risk appetite waned and global stocks fell.
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"Even when there's bad news ... there is a behavior where businesses and
people think 'I need my dollars to pay my invoices and
dollar-denominated debts'," said Jane Foley, head of FX strategy at
Rabobank.
"This is why I think there really hasn't been a huge push-back from this
sort of news, because it doesn't change the fact that people do still
need dollars around the world."
The dollar also found some support from Tuesday's economic data that
showed U.S. job openings remained at levels consistent with a tight
labor market, even as they fell to the lowest level in more than two
years in June.
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U.S. Dollar banknote is seen in this
illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration
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A separate report suggested U.S. manufacturing might be stabilizing
at weaker levels.
The Japanese yen rose 0.42% to 142.74 per dollar and looked set to
reverse three sessions of losses, with traders still assessing the
implications of the BOJ's move on Friday to loosen its grip on
interest rates.
Deputy governor Shinichi Uchida said on Wednesday the central bank's
decision was aimed at making its massive stimulus more sustainable
and was not a prelude to an exit from ultra-low interest rates.
"I think the market is still trying to get their head around what
this whole thing means," said Rodrigo Catril, senior currency
strategist at National Australia Bank.
Sterling was flat at $1.278. The Bank of England sets interest rates
on Thursday and the market is uncertain whether it will deliver a 25
or 50 basis point increase from the current 5%.
The Australian dollar fell 0.52% to $0.658, having earlier slid to
its lowest since June at $0.657.
It was extending a sharp fall from the previous session after the
Reserve Bank of Australia on Tuesday held interest rates and
signaled that it might have finished tightening.
(Reporting by Harry Robertson in London and Rae Wee in Singapore;
Editing by Shri Navaratnam and Sam Holmes)
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