French Credit Rating Downgrade Has Little Impact on EUR/USD
The spotlight has moved back onto France today as Moody's downgraded their credit rating from AAA to AA1.
This puts it in line with S&P
but comes ahead of any potential move by Fitch, who will no doubt follow suit in the coming months.
This downgrade has been on the cards for some time and, since Francois Hollande has made little effort to address the country's fiscal problems, the markets had been expecting it.
We did see some initial weakness from the euro in the aftermath of Moody's overnight announcement and the FTSE did fall at the open this morning. However, France's borrowing costs have barely budged an inch and the indices have already bounced from their lows, whilst the EUR/USD pair
is back above the $1.2800 level.
As a result, it seems that investors have already shrugged this downgrade off, but it serves as a reminder that France remains in a perilous situation.
Many believe that France is an accident waiting to happen, as its debt trajectory is going in completely the wrong direction.
Whilst France's deficit might be lower than the UK's, it's total debt as a percentage of GDP is one of the worst in the EU; higher than the UK's and even higher than Spain's.
The country's lack of competitiveness is slowly but surely dragging it down and so there's every chance that President Hollande will back-track on some of his policies next year.
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By Simon Denham, 20 November 2012