Market Review – 10/03/2011 20:45 GMT
Euro tumbles after Moody’s downgrades Spanish credit rating
The single currency tanked in European session after Moody’s lowered Spain’s government rating on Thursday. Despite the initial brief recovery to 1.3925 in Asia morning, euro then dropped sharply to 1.3864 in Asia mid-day on dollar’s broad-based strength after China posted a surprise trade deficit of $7.3 billion in February, its largest in seven years. Later, the single currency then fell further due to Moody’s downgrade of Spanish sovereign debt rating in European morning, price eventually ratcheted to a day’s low of 1.3775 in late New York trade.
Moody’s lowered Spain’s credit rating by one notch, to Aa2 from Aa1, with a negative outlook, warning of further rating cuts to come as it expected bank restructuring will cost more than twice what the government expected.
In the other news from Reuters quoting comments from German Chancellor Angela Merkel who said in a closed meeting with German lawmakers that Germany could agree to increase the lending capacity of Europe’s European Financial Stability Facility (EFSF) rescue fund if lower-rated euro members contributed capital.
The British pound also tumbled broadly on Thursday after the Bank of England held rate unchanged. Earlier, cable fell in tandem with euro in Asian session and despite staging a brief rebound from 1.6123 to around 1.6195/97 in European morning, sterling then tanked broadly after the Bank of England’s rate announcement. Price eventually hit an intra-day low of 1.6038 on dollar’s broad-based rally before stabilising in late New York trade. Eur/gbp rallied from 0.8534 to 0.8609 while gbp/jpy tumbled from 134.35 to 132.95.
The Bank of England kept interest rates at a record low of 0.5% and maintained its asset-purchase program at 200 billion pounds, judging that Britain’s economic recovery remains too weak to sustain an inflationary spiral.
The greenback also rallied against the three commodity-linked currencies on Thursday. Aud/usd and nzd/usd tumbled from 1.0118 to 0.9991 and from 0.7380 to 0.7322 respectively whilst usd/cad surged from 0.9684 to 0.9768.
First-time claims for U.S. jobless benefits rose last week from an almost three-year low, highlighting the uneven nature of the improvement in the U.S. labor market. The U.S. trade deficit widened more than forecast in January to the highest level in seven months as a surge in imports led by costlier crude oil overshadowed record exports.
Data will be released on Friday include:
German CPI, WPI and HICP final, U.K. input/output PPI and PPI core, Canadian employment change and unemployment rate, U.S. retail sales, University of Michigan survey and business inventories.