France Downgraded (Again)
Moody’s cut France’s Aaa sovereign rating by a single notch to Aa1. The news came in the twilight hours between the New York and Asia sessions when market liquidity was at a premium. EURUSD dropped 40 pips, but we think the damage is now done − Aa1 is still a very strong rating after all and forced selling seems unlikely. Also, when S&P first stripped France of its AAA rating in January the French sovereign bond market hardly reacted − although granted that earlier downgrade was well signalled in advance (unlike this one). The RBA minutes from the Nov. 6 meeting confirmed the policy board maintains an explicit easing bias – an important clarification given the policy statement itself was ambiguous on this point. The phrase “further easing may be appropriate in the period ahead” endorsed existing market pricing so AUDUSD only fell 10 pips. RBA Governor Stevens may have more to say on the matter later today. The BoJ kept policy settings entirely unchanged
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank