Forex Market Review – Euro tumbles on S&P downgrades; France to lose AAA rating

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The euro weakened across the board following news reports that Standard & Poor’s will announce that it will downgrade France. This will result in a loss of its triple-A rating. The French economy minister confirmed that the government has been notified of the one notch downgrade to AA+.   Austria is also expected to be downgraded. Both France and Austria were seen as being at risk because of their banks high exposure to sovereign debt of peripheral euro zone countries. Germany is reported to be spared any rating cut. S&P‘s downgrade of European sovereigns had been expected after the ratings agency had placed 15 euro-zone countries on CreditWatch negative in early December.

EURUSD tumbled to a new 16-month low following the news during the New York trading session, falling to 1.2626, the lowest level since August 2010. Earlier in the day euro was hurt by reports that negotiations in Greece have stalled on on a debt swap by private creditors seen as key to averting a Greek default. Also an Italian bond auction held today failed to impress. EURUSD fell 250 pips on the day from 1.2877.

EURJPY fell to a new eleven year low of 97.19 while the euro fell to close to the 1.20 franc floor set by the Swiss National Bank on September 6 last year. EURCHF reached 1.2061. EURGBP slid to 0.8273 versus an earlier high of 0.8375.

The U.S. dollar strengthened overall with the ICE dollar index, which tracks the U.S. unit against a basket of six major rivals, advancing to 81.490 from 81.313 late Thursday.

The British pound fell to 1.5233 versus the dollar, slipping from 1.5407.

The dollar rose versus the Japanese currency. USDJPY hit 77.00 from 76.65.