LONDON: US stocks fell with the dollar on Monday as markets reacted to the United States losing its last gold-standard sovereign bond rating over a debt pile that could balloon further.

The downgrade by Moody’s dealt a blow to markets, which had enjoyed a healthy run-up last week after Washington and China reached a deal to temporarily slash tit-for-tat tariffs. US stocks were down in midday trading, led by the tech-heavy Nasdaq, which fell around half a percent. That mirrored losses in Asia, where Tokyo and Hong Kong closed down.

In Europe, London and Frankfurt erased early losses to close higher after UK and EU leaders reached a series of defence and trade ties at a landmark summit, the first since Britain’s acrimonious exit from the European Union.

British Prime Minister Keir Starmer said leaders had agreed a “win-win” deal that his office said would add nearly 9 billion ($12 billion) to the British economy by 2040. The euro powered ahead despite the EU cutting its 2025 growth forecast for the eurozone, blaming US tariffs.

The dollar slid nearly one percent against the euro and also fell heavily against the pound and yen. Analysts said the downgrade by Moody’s late Friday — which follows similar moves by S&P in 2011 and Fitch in 2023 — could indicate investors will demand higher yields on US Treasuries, pushing up the cost of government debt. Yields rose on Monday.

“It seems like the ‘Sell America’ narrative is making a comeback,” said Fawad Razaqzada, market analyst at City Index and FOREX.com. The downgrade is “sending tremors through some global markets,” he said.

“Investors are increasingly jittery about the cost implications of higher borrowing, especially given the backdrop of (US President) Donald Trump’s ongoing trade disputes and proposals for unfunded tax cuts.” Gold, seen as a haven investment, jumped more than one per cent.

Eat the tariffs

After a markets rout sparked by Trump’s Liberation Day tariffs bazooka, investors had in recent weeks raced back to buy up beaten-down stocks as the White House tempered its hardball tariff approach.

But the selling returned after Moody’s cut its US debt rating to Aa1 from Aaa, noting “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns”.

Treasury Secretary Scott Bessent dismissed the announcement, saying it was “a lagging indicator” and blaming Trump’s predecessor, Joe Biden. The news added to a frustrating time for Trump as his “big, beautiful bill” to extend tax cuts from his first term and impose new restrictions on welfare programmes faces scrutiny in the Republican-controlled Congress.

Independent congressional analysts say the package would add more than $4.8 trillion to the federal deficit over the coming decade. In company news, Walmart returned to the list of firms feeling a rollercoaster effect under Trump, after the US president slammed the retail giant for warning of price increases due to his tariffs.

Trump called on the company to “EAT THE TARIFFS” on social media, adding, “I’ll be watching.” Walmart shares fell on Monday.

Published in Dawn, May 20th, 2025