Fitch downgrade hits markets
Financial markets were mostly lower overnight, with some US sharemarkets seeing the biggest losses in almost six months, after ratings agency Fitch downgraded US government debt.
Fitch downgraded its US government debt rating from the highest AAA level by one tier to AA+.
The credit agency said a “steady deterioration” in governance over the last 20 years and a sharp rise in government debt was behind the move.
The move echoes a similar move by Standard & Poor’s 12 years ago – also after a dragged-out debt ceiling crisis – which sparked a major sell-off in markets and a large rally in the US dollar back in 2011.
Overnight, US shares tumbled, with the S&P 500 down 1.4% and the tech-focused Nasdaq falling 2.2%.
USD boosted by safe haven flows
FX markets were driven by the “risk-off” sentiment with safe havens like the US dollar and Japanese yen stronger and risk-sensitive currencies like the Australian dollar weaker.
The AUD/USD fell 1.1% with the Aussie lower in most other markets.
The NZD/USD fell also fell 1.1% after unemployment ticked up in the June quarter, from 3.4% to 3.6%.
BoE due with market split on likely move
Away from the US debt woes, tonight’s focus is on the Bank of England decision.
The BoE meets at 9.00pm AEST.
The market sees a 67% chance of a 25-basis point hike with a 33% chance of a 50-basis point hike. The BoE surprised with a 50-basis point hike at their June meeting.
In terms of economics, markets will continue to look ahead to tomorrow night’s critical non-farm employment decision. Tonight, US weekly unemployment claims are due. However, the sell-off in global markets is more likely to dominate action in the short term, with the US dollar the clear beneficiary in recent years from any broader market weakness.
USD surges on safe haven moves
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 31 July – 4 August
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
