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Greece Downgraded at Moody's; Euro Drops Away From 1.4000

Greece Downgraded at Moody's; Euro Drops Away From 1.4000

2011-03-07 08:07:00
Jonathan Granby,
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Greece was downgraded this morning by Moody’s Rating Agency to B1 from Ba1 with a negative outlook. Moody’s cited the “enormous” task faced by Greek officials in reforming the nations finances. They also said that the slower than expected progress on income tax and insufficient progress on implementing reforms has led to a lower than forecast collection rate. Moody’s also mentioned the growing lack of certainty regarding support for Greece after 2013, while the assumption is that IMF/EU support will continue uncertainty is rife and the likelihood of a Greek default has risen. Adding finally, they could cut Greece’s rating again if government commitment weakens, but could raise the rating if risks of a default are diminished or consolidation speeds up.

The news comes on the back of Friday’s late action by Fitch to revise Spain’s outlook to negative and Ireland’s 10-year bond yield reached a record high earlier this morning. The EMU periphery continues to look very unsure of itself and will likely be the hardest hit by any rate action from the ECB as the recovery in periphery economies struggles to gain traction.

Greece_Downgraded_at_Moodys_body_eur.png, Greece Downgraded at Moody's; Euro Drops Away From 1.4000

The euro was immediately lower on the news of the downgrade after having been lining up another assault on the 1.40 key resistance level. The dip lower, however, is unlikely to be long-lived as interest rate hike expectations continue to keep the Eur/Usd pair well bid after the hawkish shift in ECB language last week. Weakness on the EMU periphery continues to be overlooked by euro bulls as they bid the single-currency higher on the back of the German recovery continuing apace. However, the widening gulf between the periphery and the core could pose not only economic but also political difficulties in the euro-region over the medium-term, the euro could be poised for a measured move lower as a result.

Written by Jonathan Granby, DailyFX Research Team

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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