Fitch Ratings, a company that has long criticized the increasing US budget deficit, has made a surprising decision to remove the country from its top credit rating. This has significantly influenced the currency market, forcing the US dollar to depreciate against other major currencies. The action has also affected the US stock market, with futures on major indices plunging by more than 1.0%. Bitcoin and Ethereum reacted positively to the news, gaining in value.
The uncontrolled elevation of the US debt limit over the past two decades was cited as the primary reason for this creditworthiness review. Today, Fitch Ratings downgraded the US rating from AAA to AA+. Such a decision was previously taken by S&P Global Ratings more than ten years ago. "Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, while medium-term challenges related to rising entitlement costs remain largely unaddressed," Fitch said.
Fitch highlighted that the downgrade of the United States reflects anticipated poor fiscal policy over the next three years as well as a high and growing debt burden in the public sector.
US Treasury Secretary Janet Yellen quickly responded to the downgrade, calling it arbitrary and outdated. Against this backdrop, Treasury bonds increased. "Fitch's decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world's preeminent safe and liquid asset, and that the American economy is fundamentally strong," Yellen said in a statement.
Notably, Fitch issued a negative rating in May this year when Democrats and Republicans disagreed about raising the debt ceiling, leaving the US Treasury just a few weeks from running out of cash. Although this crisis was ultimately averted, Fitch stated that repeated conflicts over debt limits and last-minute decisions had undermined confidence in the country's public finance management.
The decision could also be explained by the rapidly growing national debt burden, which, according to Fitch's forecast, will reach 118% of GDP by 2025, more than twice exceeding the average AAA rating of 39.3%.
The euro and the pound sterling reacted to this news with growth, while the US dollar lost some of its positions. The downgrade is unlikely to affect the dollar more, as there are currently no alternatives to reliable US securities or to the dollar itself. The future may bring change, but for now, American politicians seem to be indifferent to current events.
As for the technical picture of EUR/USD, pressure on the euro weakened. To regain control, buyers should climb above 1.1000. This will allow them to reach 1.1040. From this level, the price can climb to 1.1075, but doing this without the support of major players will be quite difficult. In the event of a decrease, buyers will become active only around 1.0945. If they failed to do so, it would be good to wait for the low of 1.0910 to be updated or open long positions from 1.0870.
Meanwhile, demand for the pound sterling remains quite restrained, and further growth in the pair is under question. A rise could only be expected after bulls gain control over 1.2790. This action will strengthen hopes for a recovery to the area of 1.2840, after which we can talk about a more abrupt surge to around 1.2890. If the pair declines, bears will try to take control of 1.2740. If they manage to do this, breaking through this range will affect all bulls' positions and push GBP/USD to the low of 1.2710 with the prospect of falling to 1.2630.
