EUR/USD Rises Toward 1.1200 After Moody’s Downgrades US Credit Rating

EUR/USD Climbs Toward 1.1200 After US Credit Downgrade by Moody’s

The EUR/USD currency pair gained momentum in early Monday trading in Asia, reaching levels near 1.1190, as the US Dollar weakened following a credit rating downgrade by Moody’s. The agency lowered the United States' sovereign credit rating by one notch—from Aaa to Aa1—citing mounting federal debt, rising interest payments, and long-term fiscal challenges.

Moody’s now projects that US federal debt will rise sharply to about 134% of GDP by 2035, up from 98% in 2023. The agency also expects the federal budget deficit to widen to nearly 9% of GDP, driven by increased debt servicing costs, higher entitlement spending, and declining tax revenues.

This downgrade follows similar actions by Fitch in 2023 and Standard & Poor’s in 2011, and has raised renewed concerns about the long-term sustainability of US public finances. The downgrade led to a decline in the US Dollar, offering support to the Euro, which is recovering from recent losses.

On the European side, speculation is growing that the European Central Bank (ECB) may implement another interest rate cut in its upcoming policy meeting, adding further momentum to the pair.

Despite bearish sentiment surrounding the Dollar, market losses were somewhat cushioned by improved global risk appetite. Reports suggest a potential preliminary US-China trade deal may include significant tariff rollbacks—Washington would reduce tariffs on Chinese goods to 30% from 145%, while Beijing would lower tariffs on US imports to 10% from 125%.

Additional support for sentiment comes from revived hopes of a new US-Iran nuclear agreement and the announcement of planned talks between US President Donald Trump and Russian President Vladimir Putin aimed at ending the conflict in Ukraine.

As the market reacts to these geopolitical and economic developments, the EUR/USD remains in focus, with traders closely watching for further signals from central banks and global leaders.