In a recent note, Societe Generale commented on the impact of Fitch's surprising downgrade of the US's credit rating from AAA to AA+. They suggest that the downgrade could be USD positive for now but advise caution for the UK given its current credit rating and economic outlook.

Key Points:

1. Fitch's US Downgrade: According to Societe Generale, the downgrade from Fitch might serve as a short-term positive for the USD. This outlook is attributed to the higher US yields triggered by the downgrade and the perception that the actual risk of the US not meeting its obligations remains quite small.

2. Comparison with the UK: The analysis suggests that while the downgrade may prove beneficial for the USD, a similar development might not bode well for the UK. The firm hints at concerns regarding the UK's higher debt levels compared to its GDP.

3. US vs. Italy vs. Germany: Among the G7 nations, only Germany has maintained an AAA rating from Fitch, due to its significantly lower debt level compared to the US. Interestingly, the US's debt-to-GDP ratio is comparable to Italy's, even though the two countries have vastly different ratings. The note uses this comparison to underscore the relevance of the downgrade.

4. Political Dynamics in the US: The analysis also brings to attention the recent US political quarrels over the debt ceiling. It notes that while US politicians argue over whether to increase the debt ceiling, countries like Italy, facing financial challenges, do not exhibit such political indecisiveness when it comes to debt maturities.

5. UK's Debt Concerns: The firm concludes by highlighting that the UK's debt-to-GDP ratio is higher than both the US and Italy, which could be a cause for concern.

Summary:

Societe Generale's note suggests that while the USD might benefit from the downgrade in the short term due to rising yields, similar rating actions or outlooks for countries like the UK might not have the same positive effect on their currencies. The firm suggests that sovereign ratings, while not always directly influencing the currency markets, offer important insights into a nation's financial health and political stability.