8 Nov 2013
Euro rebounds from downgrade-induced lowd
FXstreet.com (London) - The euro dipped to a low of USD1.3389 following the S&P announcement of French ratings cut, but has followed form with a post-ratings cut bounce to USD1.3427, up 0.08 percent.
The announcement followed downwards momentum for the euro after the European Central Bank wrong footed many by announcing a 25 basis point cut of the main refinancing rate to a record low 0.5 percent.
The decision by the ECB drove the euro down (perhaps intentionally), though Mario Draghi liberally borrowed from Bank of Japan governor Haruhiko Kuroda’s Guide to Central Bank Rate Announcements by declaring that the ECB was not targeting currency levels.
The decision by Standard and Poor’s to downgrade French debt for the second time in two years, this time from AA+ to AA is against a backdrop of weak economic activity and high unemployment.
"The downgrade reflects our view that the French government's current approach to budgetary and structural reforms to taxation, as well as to product, services, and labor markets, is unlikely to substantially raise France's medium-term growth prospects," said S&P in a statement accompanying the downgrade.
On top of weak industrial activity, unemployment in France reached a new record high of 3.3m in October, with the unemployment rate at 11 percent.
The decision by S&P angered French leaders, with French finance minister Pierre Moscovici claiming that S&P underestimates French recovery potential. He added that “France is on the way to solid, credible recovery.” Which will come as a surprise to the 26 percent of French youths unemployed or those within a manufacturing sector that has declined for 20 straight months.
The announcement followed downwards momentum for the euro after the European Central Bank wrong footed many by announcing a 25 basis point cut of the main refinancing rate to a record low 0.5 percent.
The decision by the ECB drove the euro down (perhaps intentionally), though Mario Draghi liberally borrowed from Bank of Japan governor Haruhiko Kuroda’s Guide to Central Bank Rate Announcements by declaring that the ECB was not targeting currency levels.
The decision by Standard and Poor’s to downgrade French debt for the second time in two years, this time from AA+ to AA is against a backdrop of weak economic activity and high unemployment.
"The downgrade reflects our view that the French government's current approach to budgetary and structural reforms to taxation, as well as to product, services, and labor markets, is unlikely to substantially raise France's medium-term growth prospects," said S&P in a statement accompanying the downgrade.
On top of weak industrial activity, unemployment in France reached a new record high of 3.3m in October, with the unemployment rate at 11 percent.
The decision by S&P angered French leaders, with French finance minister Pierre Moscovici claiming that S&P underestimates French recovery potential. He added that “France is on the way to solid, credible recovery.” Which will come as a surprise to the 26 percent of French youths unemployed or those within a manufacturing sector that has declined for 20 straight months.