WORLD FOREX: Euro Retreats Late After S&P Downgrades Spain
10-Oct-2012
By Stephen L. Bernard
The euro retreated at the end of New York trading Wednesday after Standard & Poor's cut its rating on Spain.
S&P Slashed its rating on Spain to triple-B-minus from triple-B-plus, putting it one notch above junk status. The downgrade puts S&P's rating in-line with where Moody's Investors Service rates Spain. However, Moody's is reviewing Spain for a downgrade and is expected to complete that review by the end of the month. If Moody's downgrades Spain, it would be the first of the three major ratings firms to consider Spanish debt junk.
The euro had rebounded from a more than one-week low against the dollar and was trading higher earlier in the New York session until S&P cut Spain's debt rating. The euro was at $1.2875 late Wednesday. The euro dropped as low as $1.2835--its lowest level since Oct. 1--early in the global session. It traded at $1.2884 late Tuesday.
"People think the euro can rally to $1.31 on a Spain bailout, and they're hoping to catch the bottom of the trading range around these levels," says Ken Jakubzak, head of KMJ Capital, a small currency trading firm with $10 million in assets under management.
After testing the depths of its recent range, which many market participants say is generally from about $1.28 to around $1.31, the euro spent much of Wednesday's New York trading near flat on the session. The euro's key 200-day moving average, currently at $1.2823, is said to be a strong area of support for the common currency.
Traders remain unwilling to push the euro too far in either direction as they await the possibility of a full Spanish bailout request and whether Greece will get its next tranche of aid from European officials. Spain's prime minister over the past week has downplayed the likelihood of Spain requesting a bailout, but the market is still widely anticipating such a request will be made.
Investors want to see the details of any conditions Spain must meet to get a bailout before determining the direction of the euro in the near term. The euro rose through much of September following an announcement that the European Central Bank would be willing to buy sovereign debt again from countries that seek a bailout, and some of the optimism over Spain getting its finances in order has been priced into the market.
The euro traded in a tight range against the yen Wednesday as well. It was at Y100.69 from Y100.78 late Tuesday.
Elsewhere, traders mostly brushed aside the Federal Reserve's release of regional economic activity. The Fed's Beige Book showed slow growth through much of the country, in-line with what the central bank said as it announced a further round of bond purchases last month. With the Fed having only recently announced an indefinite period quantitative easing, the Beige Book's impact on the market might dwindle.
The dollar traded at Y78.19 from Y78.25 late Tuesday. The greenback traded at CHF0.9391 from CHF0.9401 against the Swiss franc. The U.K. pound was at $1.6008 from $1.6005.
The Wall Street Journal Dollar Index, a measure of the dollar's value against a basket of major currencies, was at 69.959 from 69.958.
--Ira Iosebashvili contributed to this article.
Write to Stephen L. Bernard |
