The US dollar pared gains against its major counterparts on Monday, after Standard & Poor’s (S&P) revised its rating outlook on the United States to negative.
The euro trimmed losses against the dollar, with EUR/USD edging to $1.4317 after the news from about $1.4265 just before. The dollar hit session lows versus the yen at 82.527.
The greenback also traded lower against the British pound, with GBP/USD climbing to around $1.6320, after touching a session low at $1.6232.
Earlier on Monday, the single currency extended losses against the dollar, as debt concerns re-emerge in the region, after reports on Greece seeking debt restructuring and doubts over Portugal’s bailout.
S&P on Monday cut its outlook on the US from ‘stable’ to ‘negative’ citing nation’s very large budget deficit and rising indebtedness.
According to the rating agency, the US total government deficit fluctuated between 2 percent and 5 percent of gross domestic product (GDP) from 2003 to 2008. However, it has ballooned to more than 11 percent in 2009 and has yet to recover, S&P noted.
“We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns,” S&P said.
However, the rating agency affirmed its ‘AAA’ rating on the US saying that the economy is flexible and highly diversified.
“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said Nikola Swann, analyst, S&P.