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Published On: Mon, Jun 10th, 2013

Standard & Poor upgrade US credit rating

Standard & Poor, the first major credit rating agency to take the United States’ AAA+ credit rating from them after the debt crisis, has upgraded the US to a AA+ rating. The news was well received by investors who moved away from US government debt bonds, driving the yields to its highest point in more than a year. The dollar instantly reacted, rallying to gains against the British pound, Japanese Yen (where it already had momentum due to “Abenomics”) and the EUR. Stocks in New York opened with slight gains.

The upgrade was announced at approximately 2pm British Standard Time, with Standard & Poor now feeling that the US economy is showing genuine signs of growth. The AA+ rating essentially translate to S&P feeling the outlook for the worlds largest economy has shifted from “negative” to stable”. The agency takes into account many factors when making a decision on a country’s credit rating, similar to an individual looking for a loan, but the key elements of the decision were based around an increase in tax receipts and general “economic performance”, both of which are helping the US to begin genuinely dealing with their national debt.

On the negative side of things was the S&P comments which highlighted their feelings that the current group of officials lacked the ability to handle long term financial concerns. The S&P’s statement said, “We believe that our current ‘AA+’ rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling”.

With better than expected growth reports in private growth for US companies, the S&P forecasts that the US will be able to reduce their deficit to less than 4% within the next 18 months to two years.

The S&P also made the decision to upgrade the Latvian credit rating after the nation was granted permission to join the Euro. Standard & Poor felt that this “(reduced) Latvia’s forex risk and improve monetary flexibility”.

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About the Author

- Gregory previously worked for a leading financial news publication and is now assistant news editor of financialtrading.com.

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