S&P’s move to negative from stable for US sovereign debt means little to markets that are already cautious about the US dollar and bullish about commodities such as gold and oil.

Standard & Poor's recent change of outlook on US sovereign debt from stable to negative will be taken "extremely seriously" in Washington, according to John Taylor, founder of FX Concepts, the largest currency hedge fund in the world with $8 billion of assets under management.

"There isn't a reasonable politician there who doesn't believe that the debt ceiling won't be increased" and that "Washington's going to react by cutting the deficit here and slowing down the economy," Taylor said.

He does not expect hedge funds to be affected by such a move. "I really don't believe it does a thing for us," he noted.

"We are looking for a situation where basically the stimulus that is driving the dollar down and everything is a function of money, the QE2 [quantitative easing], hasn't got anything to do with the budget deficit or the issues that S&P are worried about."

Taylor is bullish about commodities such as gold but believes this is not fundamentally an effect of S&P's pronouncement. "Clearly they've gone up ever since S&P made its comment," he stated.

"Yes there seems to be a psychological thing going on here but I really don't think it's real. I think the trend was there already and we've just got something else to get us excited about it, so maybe it's continuing," Taylor added.

Although China is "likely to react by not wanting to buy too many US Treasury bonds", the country does not have much choice.

"Their choices are: one, the US; two, the eurozone, which looks dicey; three, Japan; and four, the UK. None of those, and those are 78% of the global traded currencies, look worth a damn," he argued.

"So they're really in a bit of a bind, They really must let their currencies strengthen. And you notice that, in fact, the Chinese maybe are strengthening their currency more," Taylor concluded.