Euro Fails to React to Slovenia Downgrade
THE TAKEAWAY: Slovenia downgraded one notch > Markets focused more on possible downgrade of core Eurozone countries > EUR flat
Moody’s downgraded Slovenia’s external- and local-debt ratings one notch from Aa3 to A1, with a negative outlook, in one of the first Eurozone ratings changes after S&P put the ratings of 15 Eurozone countries on review for a downgrade on December 5th. The Euro, however, barely reacted, continuing to trade near the $1.3050 level.
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In its rationale for its decision to downgrade the Alpine nation, Moody’s cited pressures on public finances that could arise from assistance that the government may need to provide to the country’s lenders. The agency also noted that Slovenia remains vulnerable to the broader Eurozone debt crisis and to slower growth.
Despite the downgrade, the Euro failed to respond. This was partially due to thin trading volume ahead of the holiday season. More importantly, however, markets remain more concerned about a possible downgrade of some of the core Eurozone countries, especially triple-A rated France. With little rating action expected on that front before the start of the New Year, trading in the Euro could remain relatively range-bound in the meantime.
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