RationalFX: Ireland’s Credit Rating drops from AA2 to BAA1 [20/12/2010]

Due to the Irish banking debt and the economic uncertainty Moody’s lowered Ireland’s rating from AA2 to BAA1 and claimed that if the consolidating measure of the Irish could not stabilise its credit rating it may be lowered further in future.

Contagion is still a big problem in the Eurozone, Spain and Greece were to be included in the ratings down grade watch list. The news from Ireland today heated up concerns about the debt crisis in Europe.

Friday’s Market Movers

• EUR/USD and GBP/EUR both touched a 3 week low in the afternoon as risk aversion dominated the markets due to debt crises in the Eurozone and the political problems in the Korea. EUR/USD traded as low as 1.3131 and GBP/USD traded as low as 1.5452.
• In addition, Moody’s declared that it may cut the credit rating of the United States while the markets also fear it will increase the financing costs and affect the debt and currency massively.
• In recent weeks, the companies have finished the year with locking the positions and profits. The market liquidity is becoming increasingly worse. Market volatility may not occur until the end of the year.
• Bank of England Friday reported in the semi-annual financial stability report that the UK financial system may be intensified subject to the European debt crisis and asset bubbles and junk bonds in emerging markets. GBP/USD was gloomy as EUR/USD, trading as low as 1.5452.
• BoE noted that the banking industry in the past six months has improved, but also simultaneously increases the risk faced. To resist these threats, the Bank of England urged to take similar initiatives in the June report, including: following the phase III Basel capital requirements, charging the new capital additional fee, and arranging long term plan with large scale banks.
• Over the weekend it was published that the BoE is expected to increase rates as early as next spring due to consistently high inflation worries. Consensus is for the rates to be around 2.75% by the 2012.

Today’s Market Movers

• Today we will have data only come from EU. Germany Producer Price Index came in short both YoY and MoM. Alongside BoE interest rates outlook GBP/EUR as a result is back trading above 1.18.
• We also are expecting EMU consumer Confidence for December this afternoon, which has an expectation of an increase of 0.4. If it turns out to be as good as expected, it might slightly support the Euro.