Dollar slides after Moody’s warning: Daily Times

The dollar sank on Tuesday ahead of a Federal Reserve rate decision after Moody’s ratings agency warned that US tax-break proposals could damage the outlook and finances for the American economy. In morning trade, the euro climbed as high as $1.3475 , hitting its highest level since November 23. It later stood at $1.3435, up from $1.3386 in New York late on Monday. Against the Japanese currency, the dollar slid to 83.26 yen from 83.44 yen on Monday.

The dollar was hit badly after Moody’s announced late Monday that a US tax-break plan could endanger the US top-level credit grade since it would only add to the bloated government deficit and ballooning national debt. Steven Hess of Moody’s warned that from a credit perspective, “the negative effects on government finance are likely to outweigh the positive effects of higher economic growth.”

US President Barack Obama’s compromise tax deal with Republicans cleared a key Senate hurdle on Monday and a final vote in the chamber is expected by Wednesday. “The dollar has weakened sharply following comments from Moody’s that the new US fiscal package has increased the risk that the US’s AAA credit rating could be put on negative watch in the next two years,” said economist Lee Hardman at The Bank of Tokyo Mitsubishi UFJ in London. “The escalation in sovereign debt tensions in the eurozone has long-term dollar bears licking their lips in anticipation of any potential negative ... impact on the dollar from the unsustainably elevated US fiscal position.” Later on Tuesday, at 1915 GMT, the US Federal Reserve’s Federal Open Market Committee (FOMC) was widely expected to maintain interest rates at historically-low near-zero levels. “Main focus for today will be the FOMC meeting but no change in the current monetary stance is expected,” said VTB Capital economist Neil MacKinnon.