The EUR tumbled to a fresh session low against the dollar in Friday trading in New York amid talk that Standard & Poor’s is on the brink of downgrading several European countries. The common currency dropped as low as $1.2688, down from $1.2814 late Thursday. It was most recently trading at $1.2698.
European Union sources told a downgrade of multiple countries could come as early as Friday. Last month S&P put 15 of the 17 countries in the euro zone on review for a possible downgrade because of the ongoing debt crisis.
Investors have been on edge for weeks wondering when downgrades might be announced. Market participants have been especially concerned with France losing its top-notch, triple-A rating. A downgrade to France could put in danger the region’s bailout program, the European Financial Stability Facility.
Reducing the firepower of the EFSF could provide a decisive blow if Spain or Italy eventually need a bailout. Those two countries are considered on the borderline of needing external support to help with their debt problems.
With bond yields rising through much of the euro zone, a rash of downgrades could make it even more expensive for highly indebted countries to borrow money. Spain and Italy both had successful auctions in the past two days, but yields on their bonds in the secondary market spiked after the S&P news Friday.
The yield on 10-year Italian debt was at a session high of 6.85%, according to Tradeweb. They had been trading as low as 6.48% earlier in the session. Yields on 10-year Spain bonds spiked to 5.29% from 5.12% earlier in the global trading day.
EasyForexNews Research Team