LONDON, May 19, 2025 (BSS/AFP) - Stocks fell with the dollar Monday after Moody's removed the United States' last gold standard sovereign bond rating over a debt pile that could balloon further.

The move dealt a blow to markets, which had enjoyed a healthy run-up last week after Washington and China hammered out a deal to temporarily slash tit-for-tat tariffs.

Asian equity markets closed lower, with losses mirrored in European midday deals and US futures trading.

The dollar slid one percent against the euro and fell heavily also against the British pound and yen.

The European single currency powered ahead despite the European Union cutting its 2025 growth forecast for the eurozone, blaming the move on US tariffs.

Focus was also on a landmark EU-Britain summit five years after the latter's acrimonious exit from the neighbouring bloc.

Events across the Atlantic weighed on oil prices, which were down almost 1.5 percent.

Gold, seen as a safe haven investment, jumped one percent in value.

Moody's downgrade, which came late Friday, "has weighed on US equity futures, which are sharply lower on Monday, and it has also knocked the US dollar", noted Kathleen Brooks, research director at XTB trading group.

- Debt pile -

After a markets rout sparked by President Donald Trump's Liberation Day tariffs bazooka, investors have in recent weeks raced back to buy up beaten-down stocks as the White House tempered its hardball tariff approach.

However, selling returned after Moody's cut its rating on US debt to Aa1 from Aaa, noting "the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns".

It added that it expected federal deficits to widen to almost nine percent of economic output by 2035, from 6.4 percent last year, "driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation".

Analysts said the cut -- which follows S&P in 2011 and Fitch in 2023 -- could indicate investors will want higher yields on Treasuries, pushing up the cost of government debt. Yields rose on Monday.

Treasury Secretary Scott Bessent dismissed the announcement, saying it was "a lagging indicator" and blaming Trump's predecessor Joe Biden.

The news added to a frustrating time for Trump as his "big, beautiful bill" to extend tax cuts from his first term and impose new restrictions on welfare programmes has faced scrutiny in the Republican-controlled Congress.

Independent congressional analysts say the package would add more than $4.8 trillion to the federal deficit over the coming decade.

The bill cleared a key hurdle Sunday, progressing out of the House Budget Committee after several Republican lawmakers holding up the legislation dropped their opposition after it was blocked on Friday.

Republican Congressman Josh Brecheen, however, said the legislation "still required tweaking".

Congressman French Hill, who chairs the House Financial Services Committee, said the Moody's downgrade "is a strong reminder that our nation's fiscal house is not in order".

- Key figures at around 1045 GMT -

London - FTSE 100: DOWN 0.8 percent at 8,620.02 points

Paris - CAC 40: DOWN 0.7 percent at 7,829.61

Frankfurt - DAX: DOWN 0.1 percent at 23,737.40

Tokyo - Nikkei 225: DOWN 0.7 percent at 37,498.63 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 23,332.72 (close)

Shanghai - Composite: FLAT at 3,367.58 (close)

New York - Dow: UP 0.8 percent at 42,654.74 (close)

Euro/dollar: UP at $1.1275 from $1.1154 on Friday

Pound/dollar: UP at $1.3397 from $1.3278

Dollar/yen: DOWN at 144.79 yen from 145.92 yen

Euro/pound: UP at 84.19 pence from 83.97 pence

West Texas Intermediate: DOWN 1.4 percent at $61.08 per barrel

Brent North Sea Crude: DOWN 1.4 percent at $64.52 per barrel.