The yen and the Swiss franc gained versus all of their most-traded peers as Standard & Poor’s downgrade of the U.S., coupled with a deepening euro-region sovereign debt crisis, lifted demand for the safest assets.
S&P’s outlook on the U.S. rating remains “negative” and may be cut to AA from AA+ within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” increase debt, the New York-based company said on Aug. 5 as it announced the downgrade.
The dollar rose to a four-month high against Australia’s currency and gained versus the euro as investors sought the refuge of U.S. government debt even after the rating cut as stocks fell. Treasury two-year note yields reached a record low. Canada’s dollar reached a four-month low versus the greenback as crude oil, the nation’s biggest export, plunged.
U.S. two-year note yields decreased as much as six basis points, or 0.06 percentage point, to an all-time low of 0.23 percent. Yields on 10-year notes tumbled 19 basis points to 2.37 percent. The Standard & Poor’s 500 Index dropped 3.6 percent following the biggest weekly fall since 2008.
Moody’s Investors Service reiterated that it affirmed the U.S.’s top Aaa ranking because the dollar’s status as the main reserve currency allows it to support higher debt levels than other countries, Moody’s analyst Steven Hess wrote in a report.
S&P expects the dollar, “for lack of alternative if no other reason,” to retain its reserve-currency role, John Chambers, chairman of the company’s sovereign-debt committee, said in an conference call today. Even so, the U.S. is unlikely to regain its AAA rating quickly, David Beers, managing director of S&P’s sovereign ratings group, and Chambers said in the call.