EUR/USD Analysis: Italy’s Downgrade Weighs on the Euro

ForexNewsNow | Published on October 5, 2011 at 4:43 am

ForexNewsNow –  The euro fell against the greenback on Wednesday morning, affected by Moody’s downgrade of Italy’s sovereign debt on Tuesday.

The euro was decreasing in value against the US dollar today, trading at 1.3319 as of around 07:30 A.M. GMT.

The EUR/USD pair is down 0.229% on the day and has reached a session high of 1.3359 with a low of 1.3260. On Tuesday, the most traded pair reached its lowest level since January 13th, 2011 at 1.3146.

The EU’s common currency was affected by Moody’s decision to lower the rating of Italian sovereign debt from Aa2 to A2. The agency pointed out both the state’s difficulty in financing its long-term debt and its sluggish economic growth.

Another major credit rating agency, Standard & Poor’s, had lowered the Italian rating from A + to A in mid-September because of very low growth expectations.

The situation in Greece also contributed to anxiety in the financial markets.

European leaders are struggling to reach an agreement on a strengthening of the EFSF, despite the fact that many believe the EU rescue fund is currently too weak to support the bailout of major states such as Spain or Italy.

Olli Rehn, the Commissioner for Economic Affairs in Europe, declared on Tuesday that European finance ministers are examining the possibility of a coordinated action to recapitalize European banks, a statement that may have temporarily reassured some market participants.

However, it is increasingly likely that the bailout aid to Greece might be postponed, which should continue to weigh on the euro. This may explain why most analysts’ forecasts are bearish for the Euro in the short term.

 

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