How is this for a night surprise?
Moody’s released late night/early morning commentary that the US’s AAA rating could be under pressure if the President Obama’s budget projections are correct, and that the US would be vulnerable if government bonds would require higher yields.
In contrast to the US, they expect whoever wins the next UK parliamentary elections to be able to work on cutting the deficit. They also didn’t believe the UK’s AAA rating was in jeopardy in the short term, or that the UK is in risk of a double dip recession.
However, they did state that yields on UK sovereign debt could be headed higher as the Bank of England has ended its Open Market Asset purchases.
Regarding both the US and UK, they said that how each country works on cutting its debt will be the main driver of their ratings outlook, and that current conditions allow for tax hikes and spending cuts.
The news caused the GBPUSD jumped to jump from lows of 1.5160 to 1.5190, however it has since fallen back on overall Dollar weakness.
I have to say, I like what they said about the UK elections. The UK populace does appear more ready to live through spending cuts than the US, and for that matter, most of the world. Also, while you hear UK officials talk about spending cuts and working through hard times, the sense from the US is that it is a nice idea but, “not going to happen.”
Disclosure: Author is long GBPUSD