S&P Warn About Possible Downgrade of US Rating, USD Down

The US dollar erased its gains today and posted the biggest weekly decline in three months after Standard & Poor’s warned that it may cut the US credit rating as the US lawmakers can’t agree on the nation’s debt ceiling.
S&P expressed its concerns about the situation in the US:

Since we revised the outlook on our ‘AAA’ long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.’ fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled. Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues. Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.

The rating agency warned that it may downgrade the US rating by one or more notches into the AA category in case it would decide that “Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future”. Earlier this week Moody’s Investor Service put the US credit rating on review for downgrade.
EUR/USD closed at 1.4155, rising from 1.4141, after it fell to 1.4091. GBP/USD closed at 1.6132 after opening at 1.6137. USD/JPY was almost unchanged from the opening rate of 79.13, erasing previous advance to 79.26.

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