Markets Start the Week in 'Risk-Off' Mode Amid US Credit Downgrade and Fiscal Concerns

Forex Today: Markets Risk-Off to Start the Week

Global financial markets opened the week on a cautious note, with risk-off sentiment dominating trading activity during the early European session on Monday, May 19. Investors reacted to growing fiscal concerns in the United States after Moody’s Investors Service downgraded the US credit rating from ‘AAA’ to ‘AA1’, citing long-term debt sustainability risks.

According to Moody’s, the downgrade reflects concerns over the ballooning US national debt, which has reached $36 trillion, and the government’s repeated inability to effectively address persistent fiscal deficits. The agency stated that “successive US administrations and Congresses have been unable to agree on steps to reverse the trend of large annual fiscal deficits and rising interest expense.” The announcement came Friday evening and continued to weigh on market sentiment at the start of the new week.

As a result, US stock index futures fell sharply on Monday morning in Europe, with losses ranging between 0.8% and 1.3%. Meanwhile, the US Dollar Index (DXY), which had gained for four consecutive weeks, pulled back toward the 100.50 level amid reduced investor confidence.

In the eurozone, attention turns to Eurostat’s April inflation data revisions, which could further influence EUR/USD trading. Later in the day, several Federal Reserve policymakers are expected to speak, and their comments may offer insight into the central bank's outlook following recent weak US data and the credit rating downgrade.

Despite the cautious tone, markets found a sliver of optimism as a key US congressional panel approved President Donald Trump’s tax cut proposal early Monday. The bill is now positioned to move forward in the House of Representatives, potentially delivering a fiscal boost if passed later this week.

Overall, forex traders are closely watching how the US fiscal narrative, evolving interest rate expectations, and macroeconomic indicators influence risk appetite in the days ahead.