Moody’s ratings agency announced late on Wednesday that it has placed the U.S. under review for a credit rating downgrade, based on concerns that the U.S. government will not be able to raise its debt limit before the August 2nd deadline as talks within the government have stalled. If the $14.3 trillion debt limit is not raised, the U.S government will likely default and miss payments on interest of outstanding bonds.
The threat of the U.S. losing its top notch rating rocked the stock markets as well as weighed down on the Dollar. The U.S. has held the Aaa rating since 1917.
“The U.S. debt situation is annoying. It’s politics pure and simple. I guess they’ll get out of it in time so no harm will be done,” said Koen De Leus, strategist at KBC Securities.
“But it does create additional nervousness on the top of all other issues like the uncertainty about U.S. growth in the second half of 2011, inflation problems in emerging countries and the European debt problem.”
The Dollar was also bruised when US Fed Chairman Ben Bernanke’s hint of further policy easing caused a Dollar sell-off on Wednesday.
Investors turned to safe haven assets like the Swiss Franc, leading USDCHF to a new record low of 0.8080 just as the U.S. trading session ended on Wednesday.