Euro Slides As S&P Lowers Greece Rating
The euro extended its recent decline across the board on Monday morning in New York as traders dump euro after the credit rating agency Standard & Poor’s decided to slash Greece rating.
Standard & Poor’s downgraded sovereign ratings of Greece citing rising rescheduling risk. The agency also retained the ratings on CreditWatch, with negative implications. Accordingly, the long- and short-term sovereign credit ratings were lowered to ‘B’ and ‘C’, from ‘BB-’ and ‘B’, respectively.
The downgrade reflects the rating agency’s assessment of rising sentiment among major eurozone official creditors of Greece to extend the debt payment maturities of their EUR 80 billion of bilateral loans pooled by the European Commission.
According to S&P, the eurozone creditor governments are most likely to demand “comparability of treatment” from commercial creditors in the form of their similarly extending bond and loan maturities.
A rescheduling of official debt that left commercial debt untouched would not constitute a default under the current rating criteria of S&P. However, it would likely signal falling creditworthiness.
Jean-Claude Juncker, the chairman of euro-region finance ministers, late on Friday ruled out the possibility of restructuring Greek debt, while dismissing any discussion on the exit of Greece from the euro area.
The euro reached 1.2551 against the Swiss franc, the lowest level since March 17. On the downside, the euro-franc pair may target support around the 1.2420 level.
Against the US dollar, the common currency slipped to nearly a 3-week low of 1.43 with 1.4160 seen as the next likely downside target level.
The latest round of the Sino-U.S. Strategic & Economic Dialogue is likely to see Chinese officials rejecting U.S. calls for a significantly faster pace of yuan appreciation, even as the currency continues to rise against the U.S. dollar as part of Beijing’s anti-inflation campaign.
The U.S. Labor Department said Friday the economy added a net 244,000 jobs in April. The creation of 268,000 new private sector jobs offset a loss of 24,000 government positions. Economists had expected the job growth of around 185,000. Meanwhile, the unemployment rate edged back up to 9 percent.
The euro also reached as low as 115.31 against the yen and 0.8766 against the pound around 9:15 am ET from previous highs of 116.49 and 0.8820, respectively. If the single currency weakens further, it may find target levels at 114.80 against the yen and 0.8750 versus the pound.
Members of the Bank of Japan’s monetary policy committee said that Japan’s economy is still struggling under heavy downward pressure following the March 11 earthquake and tsunami, minutes from the bank’s meeting on April 6 and 7 revealed on Monday.
At the meeting, the Bank of Japan Policy Board headed by governor Masaaki Shirakawa left the uncollateralized overnight call rate unchanged at around zero percent to 0.1 percent by a unanimous vote.
The euro also traded weaker against the resource-linked currencies, hitting a fresh 3-month low of 1.3342 against the Australian dollar and nearly a 3-week low of 1.8105 NZ dollar around 9:15 am ET. If the euro declines further, it may find target levels at 1.80 against the kiwi and 1.33 against the aussie.
The common currency also reached as low as 1.3834 against the Canadian dollar before leveling off around 9:00 am ET. This was down from previous highs of 1.3930 hit around 5:00 am ET. On the downside, the euro-loonie pair may find target around the 1.37 level.
