S&P revises US credit outlook to Stable, USD erases gains

Standard & Poor’s removed on Monday the upcoming threat of US credit rating downgrade by changing its outlook to ‘Stable’ from ‘Negative’, following an improved economic and fiscal outlook.

The change reflects that there is less than a one-third chance of a downgrade in the upcoming two years.

Nikola Swann, S&P’s lead US sovereign analyst was quoted saying: “We did get some movement from both sides and we think that is encouraging, at least to the point of convincing us that the dynamics in Washington are not likely to get substantially worse in the medium term”.

S&P reported that a key factor to its US credit rating revision was the agreement reached by the US Congress to avoid the ‘fiscal cliff’, which had put in risk 600 billion USD in automatic tax increases and spending cuts.

On Monday US trading, EUR/USD was up 0.28% at 1.3258. The USD was up against the pound, with GBP/USD down 0.27% at 1.5560.

The news raised analysts’ expectations for the Federal Reserve to begin scaling back stimulus measures shortly as US economy seems to improve, which supported the USD.

The USD continued to gain support from Friday’s jobs data before profit taking lowered the USD gains.

The Bureau of Labor Statistics reported the US economy added 175,000 jobs in May, above expectations for an increase of 170,000.

The USD was up against the Yen, with USD/JPY adding 1.23% at 98.73, and down against the Swiss franc, with USD/CHF dropping 0.29% to 0.9332.

The USD was mixed against its Canadian, Australian and New Zealand counterparts, with USD/CAD down 0.07% at 1.0190, AUD/USD dropping 0.25% at 0.9468 and NZD/USD adding 0.25% at 0.7899.

The USD index, which tracks the performance of the USD against a basket of six other major currencies, dropped 0.03% to 81.91.

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