GBP/USD holds gains around 1.3300 as US Dollar weakens following Moody’s downgrade
The GBP/USD pair recovered from prior session losses, trading near the 1.3300 level during Asian session on Monday. The rebound is largely driven by renewed pressure on the US Dollar (USD) after Moody’s Investors Service downgraded the US credit rating by one notch, from Aaa to Aa1. The agency cited escalating debt levels and a growing burden from interest payments as primary concerns.
This move aligns with previous downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011. Moody’s now forecasts US federal debt to rise to approximately 134% of GDP by 2035, up from 98% in 2023. The federal deficit is projected to widen to nearly 9% of GDP, fueled by mounting debt-servicing costs, increased entitlement spending, and declining tax revenues.
Further weighing on the Greenback, a series of weak US economic indicators has reinforced expectations of rate cuts by the Federal Reserve later this year. Notably, the University of Michigan’s Consumer Sentiment Index fell sharply to 50.8 in May from 52.2 in April, the lowest level since June 2022 and the fifth consecutive monthly decline. Analysts had forecast a rise to 53.4.
Despite these headwinds, the US Dollar may find some support from easing global trade tensions. A preliminary trade deal between the US and China proposes significant tariff reductions Washington is set to lower duties on Chinese goods from 145% to 30%, while Beijing will cut tariffs on US imports from 125% to 10%.
Market sentiment is also lifted by renewed optimism over a potential US-Iran nuclear deal and upcoming talks between US President Donald Trump and Russian President Vladimir Putin aimed at de-escalating the Ukraine conflict.
Meanwhile, the Pound Sterling (GBP) has gained momentum, underpinned by stronger-than-expected UK GDP data released on Thursday. Both monthly and quarterly figures showed robust economic growth, bolstering expectations that the Bank of England (BoE) may maintain its current interest rate stance should inflation remain persistent or accelerate further.| CP
Source: Fxstreet
