EUR/USD Rises Near 1.1200, Recovers As US Dollar Weakens On Fiscal Concerns
EUR/USD recovered from previous session’s losses, trading near 1.1190 during the Asian session on Monday (05/19). The pair strengthened as the US dollar came under pressure following Moody’s downgrade of the US credit rating by one notch from Aaa to Aa1 on the grounds of rising debt levels and rising interest payments.
Moody’s follows previous downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011. Moody’s now projects US federal debt to reach around 134% of GDP in 2035, up from 98% in 2023, while the federal deficit is expected to widen to nearly 9% of GDP, driven by higher debt service costs, rising entitlement spending, and falling tax revenues.
Despite these concerns, losses in the US dollar could be tempered by easing global trade tensions. The initial deal between the US and China includes plans to lower tariffs—Washington will reduce tariffs on Chinese goods from 145% to 30%, while Beijing will cut tariffs on US imports from 125% to 10%. In addition, market sentiment was supported by renewed optimism over the possibility of a US-Iran nuclear deal and upcoming talks between US President Donald Trump and Russian President Vladimir Putin aimed at de-escalating the conflict in Ukraine.
Meanwhile, the Euro (EUR) showed signs of weakness as expectations grew that the European Central Bank (ECB) would implement another interest rate cut at its upcoming policy meeting. Traders are increasingly confident about this prospect, driven by the belief that Eurozone inflation is in line with the ECB’s 2% target and that the region’s economic outlook remains weak amid ongoing global uncertainty.
Source: FXStreet
