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Credit rating agency Standard and Poor’s changed the credit outlook for the US from negative to stable, meaning that it does not see a chance of more than 1 in 3 to lower the credit rating from the current AA+ rating.

This is the same agency that made the historic downgrade in August 2011. Then, the move helped the dollar on risk aversion, sending money into the safe haven dollar. And this time, the atmosphere is totally different:  it helps the dollar recover on hope that the US is recovering.

Here are key parts from the statement:

… leads us to expect the U.S. general government deficit plus non-deficit borrowing requirements to fall to about 6% of GDP this year (down from 7%, in 2012) and to just less than 4% in 2015.

…  We believe that our current ‘AA+’ rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling. We expect these debates, however, to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service.

So, all in all S&P sees the deficit falling and the political stalemate is already priced in.

Currencies reaction

  • EUR/USD is under 1.32, and already tested the low end of the narrow 1.3180 – 1.3230 range with which it began the week.
  • USD/JPY made the break above 99, extending the recovery once again. It enjoyed a jump in Japanese stocks earlier.
  • GBP/USD dipped under 1.55 but managed to recover, as it has reasons to rise.
  • The vulnerable Aussie is retreating again, not enjoying the recovery to 0.9460 for too long. Will it tackle support at 0.9388? It already got close in the wake of the new week.

Further reading:  The way ahead for the dollar