Moody’s downgraded its outlook on the US

On 10 November, 2023, Moody's Investors Service downgraded its outlook on the US government's long-term issuer and senior unsecured debt ratings, to negative from stable.

Normally, one might assume that a negative outlook from a credit rating agency like Moody's would be bad news for the US and USD. However, the relationship between credit ratings, investor sentiment, and currency values can sometimes be counterintuitive.

The dollar's value doesn't just depend on the economic situation of the US, but also on how that economy compares to other countries. If investors believe that the US, despite a negative outlook, is still in a stronger or more stable position than others, then the dollar might maintain or even increase its value relative to other currencies.

Sometimes a negative US economy outlook can lead investors to anticipate interest rate hikes. Higher interest rates can attract foreign capital looking for higher returns, which can in turn strengthen the dollar. A stronger dollar means more bullish movement for USOIL.

A negative outlook from Moody's signals concern about US fiscal health, but the impact on the US dollar and USOIL is not straightforward. If signs of a weakening US persist, investors may get cold feet and run back to gold. A weakening greenback could tip the balance for USOIL and trigger a bull run.

One thing is for sure: expect plenty of volatility on all pairs related to USD. 

Here’s what the Wall Street Journal had to say on the matter.

Oil Slips on Lower Global Growth Expectations

UPDATED NOV 13, 2023 03:42 AM EST

0837 GMT – Oil prices are falling as worries about the global economy and growth weigh on prices. Brent crude and WTI are both down 1.2% to $80.44 a barrel and $76.27 a barrel respectively. Peak Trading Research says the macro mood is mixed but that energy markets are pulling the commodity space lower. “Moody’s downgraded its outlook on the U.S. credit rating this weekend, citing large deficits, rising interest costs, and political instability ahead of a possible government shutdown this Friday.” Markets in particular will be looking to Monday’s OPEC oil market report, and Tuesday’s sister report from the International Energy Agency.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.