Euro feels the heat of Ireland bailout
Yahoo Finance: 23 Nov 2010
Euro feels the heat of Irish bailout
Moody’s sees ‘multi-notch’ credit downgrade looming
source: MarketWatch.comSAN FRANCISCO (MarketWatch) — The dollar rose against the euro Monday, with the shared European currency beset by worries that Ireland faces a credit-ratings downgrade and that a wider debt crisis could be brewing.
The dollar index which tracks the performance of the greenback against a basket of other major rivals, rose to 78.611, up from 78.474 late Friday, but off session highs of 78.884.
One euro bought $1.3629, down from $1.3678 in North American trading late Friday. The euro had jumped to a high just below $1.3790 in European trading.
Germany will suffer, too
So far, Germany's guarantees of Irish and Greek debt have been cost free. German yields remain very low. But come the inevitable Greek and Irish defaults, Germany's bond market will also start to suffer.
Initially the euro got a lift following Ireland’s agreement Sunday to formally request aid from the International Monetary Fund and European Union. The lending accord, which could amount to €80 billion to €90 billion ($109 billion to $123 billion), aims to address the country’s budget deficit and banking system’s problems.
But the euro turned lower after Moody’s Investors Service warned in its weekly credit outlook that a “multi-notch†downgrade of Ireland’s Aa2 rating would be the likely outcome of an ongoing review. The bailout plan is likely to add to the government’s debt burden, the agency said. Read more on how Irish bailout offers limited relief.
Also, the Green Party, the junior partner in the coalition government, said it would leave the government once the 2011 budget and international rescue package were in place. The move was a blow to Prime Minister Brian Cowen’s ruling coalition and elections have now been set for January.
The developments “turned risk sentiment firmly to the negative side,†with asset prices wiping out overnight gains, said W. Brad Bechtel, managing director of Faros Trading in Greenwich, Conn.
U.S. and European stocks closed lower. The Dow Jones Industrial Average ended down 25 points, off its sessions lows of a nearly 150-point-deficit. Read more in U.S. Market Snapshot. Read more in Europe Markets.
Ireland’s decision to accept a bailout brought some modest relief to peripheral sovereign-debt markets in the euro zone, but economists said big questions continue to hover over the finances of other euro-zone countries as well as the ability of Ireland and Greece, which received a bailout in the spring, to avoid a restructuring of government debt.
Irish, Portuguese and Greek bond yields widened into the U.S. trading day..
“If negative sentiment on the periphery continues, than we would expect a retest of the November lows for EUR/USD around $1.3460, which happens to be the 50% retracement level of the big September-November rise,†wrote Win Thin, an analyst at Brown Brothers Harriman.
In other trading, the British pound fell 0.2% to $1.5956. The dollar turned lower against the Japanese currency to trade at 83.26 yen versus ¥83.48 late Friday.
The Australian dollar edged higher to 98.73 U.S. cents, after having earlier risen above 99 cents.
http://www.marketwatch.com/story/euro-gains-after-ireland-applies-for-aid-2010-11-22
Search Option
Recent Posts
Todays Birthdays
