Brief Euro Rebound Stalls as Fitch Downgrades Greece
THE TAKEAWAY: Fitch cuts Greece’s LT debt ratings to CCC > Rating action reflects elections, heightened risk of Euro exit > EUR lower
Fitch cut Greece’s long-term debt ratings to CCC from B- on Thursday, pushing the Euro below 1.2720 versus the US Dollar.
Chart generated using FXCM Strategy Trader. Bar denotes release of rating decision.
In its statement, the agency cited the results of the May 6 election, the inability of Greek parties to form a functional coalition, and doubts about the country’s ability to remain in the Eurozone. In addition, Fitch cut Greece’s country ceiling to B- from AAA. This represents an effective cap on ratings on all issuers in Greece.
Fitch had previously raised Greece’s credit rating from “restricted default” to B- on March 13 after the conclusion of the country’s debt swap at the end of February, which reduced the face value of the Hellenic Republic’s debt burden by over 100 billion Euros.
The news caused the EURUSD pair to move lower once again after rebounding from an intraday low of 1.2665. Significant event risk for the common currency remains on the table, including additional negative developments from the Spanish banking sector. With reports that Spain’s recently nationalized lender Bankia has seen around 1 billion Euros of deposit withdrawals since the takeover on May 9, and a likely downgrade of Spanish banks by Moody’s later today, the Euro is set to remain under significant pressure.