Moody’s Downgrade Disrupts Calm from Tariff Truce & Dollar Faces New Test

However, the relief was short-lived, as Moody’s downgrade of US sovereign credit late in the week shook sentiment and raised fresh concerns over the country’s fiscal path.

The US Dollar posted its fourth consecutive weekly gain, with the DXY rising 0.5% to close at 100.976, supported by easing trade tensions but limited by lingering concerns over the US economic outlook. Momentum remains tepid, with the greenback gaining on relative strength more than domestic conviction.

Euro edged lower, pressured by soft GDP data and ongoing Dollar strength. Sterling was unchanged, as a quiet data week left traders looking ahead to this week’s inflation print. Commodity currencies were muted, despite strong equity markets. The AUD, CAD, and NOK were flat, while NZD fell 0.5%. Yen and Peso held steady, and Swiss Franc fell 0.7%, underperforming.

Oil posted a second strong weekly gain, with WTI up 1.4% to $61.87, though it remains below key resistance. Momentum is improving, but bulls need follow-through for a broader reversal.

Equities rallied strongly last week. The S&P 500 surged 5.3%, the DOW added 3.4%, and the NASDAQ soared 7.2% on renewed trade optimism. However, the University of Michigan consumer sentiment index dropped to 50.8, and inflation expectations rose sharply to 7.3%, reflecting persistent economic concern.

The Moody’s downgrade undercut the celebratory tone, reinforcing scepticism about the long-term implications of the current trade and fiscal trajectory. While Fed rate cut expectations remain modest, market pricing now shows a 36% chance of a July cut, rising to 75% for September.