Currency markets were largely steady in European hours Monday, with the euro trading above a 16-month low against the dollar after a sharp pre-weekend selloff in the EUR. Investor sentiment remained fragile as the market continued to work out the ramifications from Friday’s euro-zone sovereign rating downgrades and in light of Greece’s rocky negotiations with international creditors to restructure its debt and stave off default.
Trading conditions were quiet, with U.S. markets mostly shut due to a holiday, European equities mixed and euro-zone sovereign bond markets in a calm frame of mind after S&P on Friday downgraded nine European countries, including France’s treasured triple-A credit rating. “We expect the euro to remain under downside pressure as the latest round of downgrades to sovereign ratings in (Europe)… will likely trigger a further adjustment to international investor portfolio holdings of European assets,” said Morgan Stanley in a note to clients.
Also weighing on traders’ minds were reports of discord between Greece and its creditors. Although Greek Prime Minister Lucas Papademos expressed confidence Monday that talks would continue after negotiations stalled Friday over the interest rate Greece would pay bond holders. If no deal is reached, Greece will need billions of euros in additional aid to help make major bond repayments due in March.
The wider implications of Friday’s downgrades in Europe were also being digested, with the sovereign-backed European Financial Stability Facility’s borrowing costs nudging higher ahead of Tuesday’s scheduled treasury bill sale by the bailout fund. S&P put the EFSF’s triple-A rating on credit watch negative last December.
EasyForexNews Research Team