Euro Little Changed as Moody's Downgrades EU Outlook
THE TAKEWAY: EU credit outlook downgraded to negative > EU ratings are supposedly dependent on credit status of Germany, France, U.K. and Netherlands > Euro little changed
The Euro was little changed after Moody’s rating service reduced the long-term credit outlook for the European Union from stable to Negative. Moody’s also changed the outlook on the provisional rating for the EU’s medium-term note program from stable to negative. The statement further made the assertion that the change in outlook for the EU “reflects” the downgraded status of the Eurozone’s largest economic contributor’s willingness to provide a backstop to the troubled hot-spots in the bloc. The statement specifically states Moody’s believes the “likelihood of the large Aaa-rated member states would likely not prioritise their commitment to backstop the EU debt obligations over servicing their own debt obligations.”
Roughly 45 percent of the EU’s revenue budget comes from Germany, France, U.K. and the Netherlands.
Therefore, it’s probably safe to assume that as long as the fundamental strength of the highest rated members can show improvement, then the necessary funding to keep the EU’s Aaa rating in-tact would likely be provided.
Looking forward, the European Central Bank is scheduled to make their rate decision on September 6. According to Credit Suisse data, markets are currently anticipating an 8 percent chance of a 25 basis point cut to rates by the ECB on Thursday.
EUR/USD, Daily Chart
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