Ahead of the weekend, Moody’s became the last of the top three credit rating agencies to revoke the U.S. AAA rating. While this move added no new information, markets in Asia and Europe reacted by offloading U.S. assets and the dollar. Long-term Treasury yields rose sharply, with the 30-year yield climbing above 5% and the 10-year approaching 4.5%. The S&P 500, which had posted its second-best week of the year with a 5.25% gain, is now under pressure and expected to open lower. The U.S. dollar has broadly weakened, with most G10 and emerging market currencies strengthening, although the New Zealand and Canadian dollars lag behind.

Asia Pacific Markets

The Japanese yen saw some recovery after falling below JPY145, later bouncing above JPY146, though support around JPY144.25 remains in focus. Japan’s Q1 GDP contracted by 0.2%, while the tertiary index’s mild decline wasn’t a major concern. More attention is on the upcoming April trade data, expected to show a third consecutive monthly surplus.
In Australia, the local dollar showed modest gains amid a weaker greenback. However, it remains under pressure due to falling momentum. The Reserve Bank of Australia is widely expected to announce a 25-basis-point rate cut, bringing the cash rate to 3.85%, with two more cuts anticipated later in the year.

European Markets

The euro has rebounded from three-day lows and surpassed a key trendline near $1.1260. A rise above $1.1285 could lead to further gains toward $1.1380. Key German data releases later this week may influence sentiment, with markets anticipating a rate cut from the ECB next month.
Meanwhile, sterling approached a three-year high near $1.3445. The UK and EU have reached a preliminary deal on defense and security cooperation, and the UK extended fishing rights agreements through 2038. Despite important UK economic data due soon, markets see little chance of an interest rate cut in June, keeping expectations focused on August.

American Markets

Last week, the U.S. Dollar Index ended on a strong note, hitting a short-term high before Moody’s downgrade. Despite the lack of fresh news in the rating cut, the index has since dropped to around 100.15 and could slip further toward 99.50. U.S. data releases are light this week, with the Leading Economic Index due, though it rarely impacts markets as most components are known. The index has declined for three consecutive months. The Philadelphia Fed’s non-manufacturing survey may show a modest improvement from April's historic low. Meanwhile, budget negotiations continue, adding more debt concerns amid speculation about future regulatory easing for U.S. banks.