Dollar Weakens Against Franc After Credit Downgrade

I suppose 98% of what John Boehner wanted was a weak American dollar and international embarrassment for the US, because the dollar has declined in the past two days since Standard & Poor’s announced their decision to downgrade America’s credit rating.

Investors are flocking to currencies they see as more stable in the wake of the high-profile sanction on the US, as many blame lawmakers who were willing to play chicken with the US and world economy to make a political point. According to BusinessWeek, the “dollar fell to a record against the Swiss franc and experienced a second day of loss against the yen as global investors reacted to the decision.

Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in New Zealand, commented on the implications of the credit downgrade:

“Initially we’re going to see massive risk off and demand for traditional safe-haven currencies such as the Swiss franc and yen,… This will be a real test of intervention to see whether or not officials can withstand the safe-haven flows that may head their way.”

After the decision, S&P had this to say about why they opted to downgrade the US:

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

John Normand, head of the London branch of JP Morgan Chase’s foreign exchange strategy, said the decision “highlights the much-less advanced pace of fiscal consolidation in the U.S., relative to Europe and the U.K.,” and S&P warned that the US could face further sanctions and an additional downgrade if political wrangling and spending are not handled more efficiently in the future.