The euro is continuing to weaken on speculation European nations will struggle to raise funds after Ireland suffered a five notch credit downgrade.
Ireland’s repositioning just above ‘Junk status’ has sparked renewed concern over the future of other indebted nations in the eurozone. In response, the single currency depreciated against most of its major counterparts including a two week low against the US dollar and Japanese yen, as well a record low against the Swiss franc.
Sentiment is very bearish towards the sixteen nation currency with the prospect of further downgrades looming overhead before the long Christmas break. Whispers in the market point to even France being in the crosshairs of Moody’s et al as the cost to insure French government debt has trebled this year. The abundant credit warnings and increasing speculation over the spirally debt crisis have left the euro looking particularly vulnerable as we head into the new year.
Divisions within the European Central Bank are also not helping the situation. European finance ministers have ‘serious concerns’ that the Irish draft legislation to fix the banking system may threaten the ECB’s ability to run its liquidity operations.
In other news, the aussie dollar continues its run of good fortune as it hits a 25 year peak against the pound and the euro following the Irish downgrade.
Tom Hampton
Analyst – Caxton FX
