The US dollar index fell to around 100.5 on Monday, retreating further from recent highs after Moody’s Ratings unexpectedly downgraded the US government’s long-term credit rating late Friday.
Dollar weakens on US downgrade
The agency lowered the rating from Aaa to Aa1, citing increasing concerns over the sustainability of the nation’s growing $36 trillion debt burden, fiscal deficits, and political dysfunction. The move rattled markets and raised questions about the long-term implications for US borrowing costs, potentially complicating President Trump’s renewed push for sweeping tax cuts ahead of the 2026 midterm elections.
In response, Treasury Secretary Scott Bessent sought to reassure investors and downplay the downgrade, stating on Sunday that the administration’s pro-growth policies—including deregulation, expanded energy production, and renewed trade negotiations—would generate enough economic momentum to outpace debt accumulation. Still, he reiterated a tough stance on trade, warning that partners who fail to negotiate "in good faith" would face the full scope of the steep tariff increases floated by President Trump last month.
US data dampen the dollar
Meanwhile, the dollar also came under pressure from last week’s batch of underwhelming US economic indicators, including softer-than-expected inflation, retail sales, and industrial output figures. The data bolstered market speculation that the Federal Reserve may cut interest rates two more times this year, possibly as early as the summer, to support slowing growth. As a result, yields on US Treasury bonds dipped, adding further downward pressure on the greenback.
In the currency markets, the dollar declined broadly, particularly against several Asian currencies such as the Korean won, Japanese yen, and Chinese yuan. Investors shifted away from the dollar in favor of risk-sensitive assets, especially amid tentative optimism over US-China trade relations and signs of relative economic resilience in parts of Asia. Traders will now closely watch upcoming Fed minutes and comments from central bank officials for additional clarity on the path of monetary policy.
