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The agency kept America’s credit rating at triple A but for the first time since it started rating US debt 70 years ago, cut its outlook from “stable” to “negative”. A negative outlook means there is a one-third chance of a downgrade in the next two years.
Doubts about US creditworthiness could threaten the dollar’s use as a global reserve currency amid the rise of rivals such as China that have better growth prospects and fewer fiscal challenges.
S&P's threat to downgrade the U.S.'s AAA credit rating is a wake up call for Asian investors, according to one senior economist.
John Silvia, Chief Economist at Wells Fargo told CNBC on Tuesday that the current U.S. budget situation was unsustainable over time.
"If significant progress is not made you will probably get a depreciating dollar, probably higher interest rates, higher inflation, which means that many Asian investors will have capital losses on their U.S. treasury portfolios," Silvia added.