Key Market Takeaways:

• Moody’s Cuts U.S. Debt Outlook: The ratings agency has lowered its view on U.S. government obligations, citing rising fiscal risks.
• Renewed “Sell-America” Momentum: Investors reacted to the downgrade by trimming dollar positions, pushing the greenback lower across major currency pairs.

Market Recap

🔹 Moody’s Downgrade Hits U.S. Credit Standing Late Friday, Moody’s cut the United States’ sovereign rating to Aa1 from Aaa, citing a rapidly widening budget deficit and little progress toward fiscal consolidation.

Why it matters:

• Investor sentiment: A lower rating raises questions about the long-term sustainability of U.S. finances, prompting a reassessment of risk across global markets.
• Dollar impact: Initial reaction has been a softer U.S. dollar as some trader’s trim exposure to U.S. assets.
• Bond market watch: Treasury yields could stay volatile; higher borrowing costs may follow if investors demand a larger risk premium.

Markets will be watching this week for official responses from Washington and any ripple effects on funding costs, credit-default swaps, and global risk appetite.

Today’s Market Update:

🔹 “Sell-America” Trade Reignites

• Moody’s downgrade fallout: U.S. equity futures and the dollar opened the week on the back foot after Moody’s cut the sovereign rating late Friday, reviving risk-off positioning toward U.S. assets.

🔹 Sterling Steady Ahead of Key Data

• Political boost muted: News that UK-EU negotiators struck a cooperation pact ahead of today’s summit has had little immediate effect on GBP.
• Inflation spotlight (Wed): CPI: expected 3.3% y/y (prev. 2.6%) Core CPI: 3.6% y/y (prev. 3.4%) Services CPI: 4.9% y/y A hotter print would validate the Bank of England’s “go-slow” rate-cut stance and could keep the pound supported.
• Retail sales (Fri): An additional gauge of UK consumer resilience.

🔹 Eurozone Watch Points

• ECB minutes: Due this week; traders will parse the text for how far policymakers might lean dovish in response to fresh U.S. tariff risks.
• Surveys: Flash PMIs for the Eurozone, U.S., and UK, plus Germany’s IFO, will help measure any early growth drag from the tariff announcement.

What it means

• Dollar bias: Near-term pressure likely persists unless incoming U.S. data surprise to the upside.
• GBP outlook: Firm inflation could offer tactical support, but broader direction will hinge on BoE guidance and global risk sentiment.
• Euro focus: Any hint of faster ECB easing could weigh on EUR, especially if survey data soften.

Stay tuned for mid-week data releases that could set the tone for FX and equity markets into month-end.

19th May 2025

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