Fitch Keeps US Credit Rating at AAA, Does Not Benefit USD

Fitch Ratings kept the US sovereign credit rating at AAA with stable outlook. This should have given another boost for the dollar but, surprisingly enough, the US currency was not strong at all today, falling against the Japanese yen and dipping versus the euro. The greenback rose against the Great Britain pound, but the gains were small and are all but erased as of now.

Fitch announced today:

Fitch Ratings has affirmed the United States of America’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘AAA’ with Stable Outlooks.

The rating agency cited various reasons for the high rating, including the deal to avoid the fiscal cliff:

The federal debt limit was suspended in mid-February in a timely manner and in a way that avoided casting uncertainty over the full faith and credit of the US, in contrast to the crises in August 2011 and October 2013.

Robust economic growth helped to keep the optimistic outlook:

Growth prospects are more robust and demographic trends less worrisome than in many advanced country peers. The US economy has gained momentum and Fitch forecasts GDP growth to accelerate from 1.9% in 2013 to 2.8% in 2014 and 3.1% in 2015.

Yet the agency also mentioned possible negative developments that might hurt the rating:

– A significant increase in general government deficits and debt/GDP ratio, for example if the US authorities do not take measures in the medium term to offset rising expenditure pressures from ageing and higher interest rates later in the decade.
– A material deterioration in the coherence and credibility of economic policymaking or a negative shock that erodes the role of the US dollar as the pre-eminent global reserve currency and reduces financing flexibility and debt tolerance.

Nevertheless, the report was mostly positive and it is surprising to see that the US currency did not benefit from it. The possible reason for such behavior is the view that the dollar’s rally was too big and some sort of correction is in order.

EUR/USD ticked up from 1.3777 to 1.3796 as of 9:39 GMT today, bouncing from the low of 1.3764. USD/JPY dipped from 102.37 to 102.11. GBP/USD traded virtually flat at 1.6503 after falling to 1.6474.

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