US Dollar Retreats After Moody’s Downgrade and Trade Tensions

The U.S. dollar slipped in early Asian trading, trimming a four-week winning streak as markets reacted to a surprise downgrade of America’s credit rating and persistent global trade tensions.

The greenback had gained 0.6% last week after a temporary trade truce between the U.S. and China reduced recession fears. However, fresh economic indicators, including rising import prices and declining consumer confidence, signaled fragility in U.S. economic sentiment.

Moody’s downgraded the U.S. sovereign credit rating by one notch on Friday, citing the ballooning national debt, now exceeding $36 trillion. This move follows earlier downgrades by other major credit agencies and raises fresh concerns over the U.S.’s long-standing safe-haven status.

Mahjabeen Zaman, head of FX research at ANZ, noted that mounting U.S. growth risks and policy uncertainty are undermining investor confidence in the dollar’s traditional role as a safe haven.

U.S. Treasury Secretary Scott Bessent reinforced market jitters on Sunday, warning that President Donald Trump is prepared to impose new tariffs on trading partners who refuse to negotiate “in good faith.” Simultaneously, Trump faces internal Republican resistance over a proposed tax cut bill that could add up to $5 trillion to the federal debt over the next decade.

As a result, the dollar dropped 0.3% to 145.22 yen and 0.2% against the Swiss franc. Meanwhile, the euro rose 0.2% to $1.1185, and the British pound gained 0.1% to $1.3299. The Australian dollar edged up 0.1% to $0.6409, with markets anticipating a 25 basis-point rate cut from the Reserve Bank of Australia. New Zealand’s kiwi dollar also advanced 0.1%, reaching $0.5888.

Forex traders continue to monitor U.S. fiscal developments and central bank actions for further direction.