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Euro Slips Slightly After Egan-Jones Downgrades France to 'BBB+'

Euro Slips Slightly After Egan-Jones Downgrades France to 'BBB+'

Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [Egan-Jones Downgrades France to ‘BBB+’ from ‘A-‘] > [Deterioration in France’s credit metrics likely to pressure the country] > [Euro slips slightly then rebounds on G-20 speculation]

Egan-Jones Ratings cut its ratings on France today by one notch to ‘BBB+’ from ‘A-’, on the expectations that “deterioration in France’s credit metrics combined with the needed support for France’s banks are likely to pressure the country”. This latest downgrade on a euro-zone member follows on the back of yesterday’s downgrades on Spain by Moody’s Investors Service and Egan-Jones.

The ratings agency released a synopsis on today’s decision, as follows:

“For the most part, over the past 18 months France has been exempted from the rise in funding costs. However, as the crisis evolves, we expect that France will be pressured. The deterioration in France's credit metrics combined with the needed supported for France's banks are likely to pressure the country. A major catalyst is likely to be charges for the weakened periphery countries. Hollande will be under pressure to keep campaign promises which will ultimately hurt credit quality.”

Despite the latest downgrade, France still remains within Egan-Jones’ investment grade status and three notches away from junk status, while retaining its ‘AAA’ rating by Moody’s and Fitch and ‘AA+’ rating by S&P.

EURUSD 1-minute Chart: June 14, 2012

_Euro_Slips_Slightly_After_Egan-Jones_Downgrades_France_body_Picture_1.png, Euro Slips Slightly After Egan-Jones Downgrades France to 'BBB+'

Chart created using Market Scope – Prepared by Tzu-Wen Chen

The euro slipped slightly in the minutes after Egan-Jones downgraded France. However, it quickly rebounded and strengthened against the greenback amid speculation that the G-20 countries will coordinate collective action if Greece leaves the euro-zone, pending the outcome of the June 17 Greek election.

--- Written by Tzu-Wen Chen, DailyFX Research

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

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