The U.S. dollar slumped to a two-week low in European trading Monday, pressured by Moody’s credit rating downgrade and growing expectations of Federal Reserve rate cuts. The dollar index extended losses as Moody’s became the third major agency to strip America of its top-tier rating, citing unsustainable fiscal deficits and political gridlock over debt management.
President Trump amplified pressure on the Fed, reiterating demands for immediate rate reductions to counter global economic headwinds. His comments came as Treasury yields showed mixed movement, with the 30-year bond holding near 5% while short-dated yields declined on heightened recession risks.
The rating action has intensified focus on this week’s U.S. economic data, particularly Thursday’s CPI report, which could determine whether the Fed maintains its restrictive policy stance. Market participants now see a 65% chance of rate cuts beginning by March 2023, according to CME FedWatch data, up from 58% before the downgrade announcement.
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