Fitch's Downgrade of U.S. Credit Rating Sparks Market Uncertainty
02/08/23
Fitch announced on Tuesday that it was reducing the U.S. credit rating from AAA to AA+, prompted by factors such as predicted fiscal deterioration over the forthcoming three-year period and ongoing brinkmanship over the debt ceiling. This constant haggling over the debt ceiling poses a potential risk to the U.S. government’s capacity to settle its debts.
This downgrade results in Fitch becoming the second prominent rating agency after Standard & Poor’s to revoke the United States’ coveted triple-A rating.
The announcement triggered a drop in the dollar against a variety of currencies, a minor downturn in stock futures, and a rise in Treasury futures. However, several market players and analysts anticipate that the downgrade’s repercussions will likely be muted.
In a statement, Fitch indicated that they perceived a consistent decline in governance standards over the past two decades. This includes areas related to fiscal and debt matters, despite the bipartisan agreement reached in June to suspend the debt limit until January 2025.
On the back of this news, Wednesday saw the UK’s premier stock index, the FTSE 100, drop by more than 2% amid a souring of global risk appetite, prompted by Fitch’s decision to downgrade the credit rating of the United States. The FTSE 250 midcap index which primarily consists of UK-focused firms, also suffered a drop, losing 1.2%.
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