The euro remained steady in thin trading during the North American session where US markets were closed for the Martin Luther King public holiday this Monday.
Standard & Poor’s announced late in the session its decision to downgrade the European Financial Stability Facility (EFSF), which is the European bailout fund. Just days after downgrading France and Austria from their coveted triple A credit status, the EFSF has had its own AAA rating cut by one notch to AA+.
The euro was stable after the news just after 18:00 GMT. EURUSD had slipped slightly before the announcement on speculation of a downgrade but then pared losses. EURUSD has been mostly range bound since the European open today, trading between 1.2638 – 1.2686.
In a statement, the EFSF said the downgrade would not affect its lending capacity, and emphasised that its short-term rating remained at S&P’s top level.
EFSF director Klaus Regling said after the downgrade news that the EFSF will retain its effective lending capacity of 440 billion euros despite Standard & Poor’s decision to downgrade its long-term rating by one notch to AA+.
In other currencies, GBPUSD rose to a day high of 1.5350 from the Asian session open of 1.5277. USDJPY fell to 76.69 from 77.04. USDCHF was range-bound above 0.9523 while EURCHF moved off four-month lows to climb to 1.2097 on the day.
The Canadian dollar was the biggest gainer as it edged higher against its U.S. counterpart on Monday, supported by stronger oil prices, but investors remained cautious in the aftermath of rating downgrades on several euro zone countries. Rising oil prices helped keep the Canadian dollar elevated since oil is Canada’s major export. Iran said today that a disruption to crude supplies through the Strait of Hormuz would cause a shock to markets that “no country” could manage”. USDCAD fell to a low of 1.0163 from the day high of 1.0251. The loonie hit a twelve-month high against the euro, as EURCAD tumbled to 1.2879 today.