Dollar Could Slump on AAA Rating Fears: Analyst
As talk of the United States' ability to keep its AAA rating resurfaced Wednesday, one analyst told CNBC that the impact could be prove a major drag on the strength of the dollar.
Concerns over the rating reemerged as David Walker, chief executive of the Peter G. Peterson Foundation and former comptroller general of the US, wrote in an opinion piece in the FT that the US government’s top tier rating could be at risk.
Walker cited the need for comprehensive health-care reform and the government’s inability to address the growing structural imbalances facing the country for his doubts over the gold seal for investors, which the US has held since 1917.
- Watch the full interview with Zeb Bhamabove.
Around two years ago, rating agency Moody’s issued a warning shot across the bows of the US by saying that if it didn’t start to balance its books it could lose its AAA rating, Walker wrote. That was before the credit crisis even stuck and the problems highlighted by Moody’s have intensified, he said.
“It’s highly unlikely that (a downgrade) will actually happen, I think it’s just a warning to all policy makers that if they continue to increase spending it’s going to be untenable in the long term,” Zeb Bham, currency strategist at CorporateFx, told CNBC.
If the US is downgraded by one or more of the rating agencies, it could result in a massive devaluation of the dollar, according to Bham.
Speculation reported in London's Telegraph newspaper last month, about the pound's status as AAA-rated, sent the UK currency tumbling by 1 percent, Bham noted. And that was just a rumor, he said, adding that a similar pressure could visit the dollar.