USD: should investors be worried about Fitch downgrade?

IGTV’s @Angeline Ong filters out the noise and takes a look at the reaction to the news, from global stocks to fixed income, to find out.

(Video Transcript)

Fitch downgrades US

Fitch, a credit rating agency, recently downgraded the United States. This means that Fitch believes that the country's creditworthiness has decreased. This decision has sparked a debate among experts. Some people think that the downgrade was long overdue because of the growing risks related to credit and investments in the United States. They also point to the recurring debt ceiling crises as a reason for the downgrade.

On the other hand, some people believe that the impact of the downgrade will not be significant. Janet Yellen, the US treasury secretary, dismissed the downgrade as arbitrary and based on outdated information.

The reaction

After the downgrade, there were some changes in the market. Initially, the US dollar dropped in comparison to other major currencies, but it later stabilised. The yield on US 10-year Treasury notes decreased, and both gold and the Japanese yen slightly increased in value.

The reaction in the stock market was not as severe as expected, with popular indexes like the Dow Industrials, Nasdaq, and S&P 500 declining between 0.5% and 1% at the beginning.

However, investors are anxiously waiting for the upcoming jobs report on Friday. This report will provide information about the current state of employment in the country, and it is considered crucial in determining investor sentiment. If the jobs report reveals unexpectedly weak figures, investors might become more worried.

The general agreement is that Fitch's downgrade has added some uncertainty to the market. However, it is still unclear how much of an impact it will have in the coming days and weeks. The market will need time to fully understand the consequences of this downgrade.