Spain Downgrade Sours FX Market Mood
For the third time in almost a year and a half, Moody’s Investor Services downgraded Spain’s credit rating. Citing growth concerns and funding inabilities, the global credit agency cut the country’s rating by an agressive two notches – from Aa2 to A1. Although the move mimics decisions by the other two global credit agencies, both Fitch and S&P still rate Spain credit one notch higher in comparison.
In the details of the report, Moody’s analysts noted weaker growth prospects for Europe’s fourth largest economy as a main proponent for the downgrade – lowering gross domestic product estimates for the next year to 1%. Previously, the agency had forecasted positive growth of 1.8%. In addition, analysts gave credit to the current administration’s efforts at labor market reform. But, it remained unconvinced that wide funding needs and aggressive austerity benchmarks were successfully going to be met. High corporate and banking debt loads would likely place the country in a compromising and vulnerable position.
The downgrade, and subsequent analysts comments, has tempered a short term rally in the EURUSD currency pair as well as other major currencies against the US dollar. The AUDUSD currency pair has fallen to trade at 1.0253 after hitting a session high of 1.0326, while the GBPUSD has declined to 1.5704 – down 0.5% since midday.
All three agencies continue to maintain a negative outlook on the Spanish economy.