DXY Dollar Index Quickly Stabilized after Initial Dive on Fitch Downgrade

The dollar struggled to recover on Wednesday after Fitch's downgrade of the U.S. government's top credit rating raised questions about the country's financial outlook, although it received some support from relatively solid economic data.

As we already wrote earlier today, Fitch Ratings downgraded the United States from AAA to AA+, prompting an angry reaction from the White House and surprising investors despite the government debt ceiling crisis being resolved two months ago.

The surprise decision pushed the dollar lower, lifting the euro to $1.10. The single currency was last up 0.12% to $1.0977 after earlier hitting a session high of $1.1020. Simultaneously, the pound sterling stabilized at $1.27755, while the U.S. dollar index, DXY, rose 0.09% to 102.24, down significantly following the Fitch news.

Fitch's decision will likely impact the performances of the U.S. stocks and bonds, but unlikely to affect USD itself. But in the short term it's not going to be a long-term drag on the world’s reserve currency. The dollar also received some support from Tuesday's economic data, which showed U.S. job openings remained at levels consistent with a tight labor market, even though they fell to their lowest level in more than two years in June. A separate report suggested U.S. manufacturing may have stabilized at weaker levels in July amid a gradual improvement in new orders, although manufacturing employment fell to a 3 Yr low.