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US Credit Rating by Fitch Remains at AAA

US ‘AAA Rating’ Affirmed by Fitch bu For US But Negative Outlook for Elevated Debt

Forex Rating 

Fitch Ratings on Friday affirmed the US credit rating at AAA. But the outlook is negative, citing still elevated debt levels that leave it vulnerable to shocks unless more deficit reduction measures are adopted. The affirmation reflects strong economic and credit fundamentals, the firm said in a statement. Fitch said it will conduct a further review of the credit rating by the end of 2013.

According to Fitch:

"The outlook remains negative due to continuing uncertainty over the prospect for additional deficit-reduction measures necessary to reduce government indebtedness over the medium to long term"

Fitch also said the negative outlook reflects "near-term risks associated with the expiration of federal appropriations authority at the end of the current fiscal year (30 September 2013) and in particular a timely increase in the debt limit."

On June 10, rival Standard & Poor's, which cut the U.S. credit rating to AA-plus from AAA in August 2011, revised its outlook on the credit to stable from negative, removing the near-term threat of a downgrade because of an improving economic and fiscal outlook.

Moody's Investors Service holds the U.S. rating at AAA with a negative outlook, a position it has held since August 2011.

The firm highlighted the diversity of the U.S. economy, its "extraordinary monetary and exchange rate flexibility," global reserve currency status of the U.S. dollar as well as the depth and liquidity of its financial markets as underpinnings for the top credit rating.

According also to Fitch:

"Fitch's current assessment is that the economic recovery is gaining traction as the headwinds from private sector debt deleveraging ease. This is underpinned by a pick-up in the housing market and gradual decline in unemployment"

◘ Source: Daniel Bases and Pam Niimi, Thomson Reuters

World GDP Breakdown

The World GDP Breakdown

The graph supplied by ‘The Economist’ presents the global GDP and brakes it in three main categories: Rich Countries | The BRICS | Other Emerging Countries

According to ‘The Economist’, the world growth in Q1 2013 slowed to a 2.1% pace. Compared to Q1 2012 it is down a full percentage point.

World Gdp

Rich Countries

Rich Countries are barely growing nowadays. Europe is deep in recession while the US growth in Q1 has been revised lower.  The prospects for Q2 of 2013 may considered also poor.  Japanese growth is likely to lead again, with both exports and domestic consumption continuing to recover.

Emerging Markets

Emerging market often grow faster than the high income countries, though it does not always lead to superior asset returns as their currency exchanges are devaluating constantly against ‘hard’ currencies like the Euro, the US Dollar and the Swiss Franc.

The BRICS  (Brasil, Russia, India and China)

The BRICS have slowed, as have other emerging markets.  The sharp rise in global interest rates starting in late-May will not help matters.  The increase in interest rates is not a reflection of greater demand for capital due to increased activity.  Rather the rise in rates reflects portfolio adjustments in response to the tapering talk the US (less stimulus is not the same thing as no stimulus), continued selling of foreign assets by Japanese investors, and the liquidity squeeze in China.  

With the Fed officials trying to help the market understood the meaning of its forward guidance and the acute phase of the Chinese squeeze being alleviated, rates ease and stabilize.  There remains a reasonable chance that global growth picks up late Q3 or early Q4.  

Source: Marc Chandler, The Economist

The 10-Year US Treasury

The 10-Year US Treasury Yield Rises

The 10-year US Treasury yield levels up and that changes a lot of things regarding the exchanges rates of US Dollar.

The following chart was released by Global Financial Data, while Ralph Dillon noticed:

"What is clear in looking at this chart, is that the 10yr has traded very close to its 50 [month] moving average back to 1790. And when you look at it from a historical perspective and not under the microscope, it may lead you to believe that we may see yields creep back up closer to its 50 [month] moving average as it has over the last 225 years”

Here is an interesting chart via Global Financial Data  that reads the 50-month moving average.

Chart: 10-year US Treasury & Moving Average


◘ FxPros.net (2013)

The 10-Year US Treasury

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