Monday, April 18, 2011

Standard & Poor’s put a“negative” outlook on the AAA credit rating of the U.S.

Standard & Poor’s put a“negative” outlook on the AAA credit rating of the U.S., citing a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt.
“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” New York-based S&P said today in a report. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

Longer-term Treasuries fell, reversing earlier gains, after S&P lowered its outlook to negative from stable. The cost to protect against a default by the government and the nation’s banks jumped and stocks declined after the New York-based ratings firm’s action, which assigns a one-in-three chance that it will lower the U.S. rating in the next two years.

* 18 Apr 11: 15:02 GMT (LDN) - FX NOW! EUR/USD, USD/JPY Flows-Client/corporate flows stimulated by debt news, EUR gets hurt
Debt has been the only issue of real note today. Finish complaints eurozone rescue funds, Greek restructuring rumors and finally S&P's decision to lower its projections for the US due to lack of agreement amongst lawmakers about how to cut spending/deficits. While there have been some intraday reversals, the "risk off" momentum build up has given JPY a bid across the board, which cements it as the "safe haven" currency. USD, surprisingly, has taken back the knee jerk losses seen in reaction to the S&P downgrade news and it is outperforming everything, including CHF, except for JPY. Retail and corporate order flows are generally limited on Mondays. Today's constant news noise, has stimulated greater activity than usual, and so far the added flows are just adding to the advances in JPY and USD, while ensuring that EUR continues to suffer under a cloud of growing uncertainty. Uncertainty has apparently sent sovereign buyers to the sidelines, which is not an unfamiliar place for them to be when the eurozone debt malaise gets more attention. M.B.

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