Markets refocus on Spanish contagion threat as S&P downgrade the nation and change outlook to negative

Tom Tong27/Apr/2012Currency Updates

EUR

The Euro fell yesterday, extending its losses against mort G10 currencies. This was largely due to Standard and Poors decision to cut the credit rating of Spain by two levels to BBB+ from A, casting further doubts on the country’s efforts to cut their budget deficit. Spain’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades. Euro woes were furthered this morning upon news of an unexpected fall in German consumer confidence.

GBP

Although GDP figures out earlier this week confirmed the UK had officially slipped into a double-dip recession, the Pound has still held strong. While signs of a weakening economy usually would send a currency lower, the Pound on Thursday rose 0.2%. The gain against the Euro is obviously contributed to the downgrading of the Spanish credit rating, and this has led to sterling posting its highest level against the single currency in two years. Analysts said recent data and surveys have shown signs of improvement in the UK, limiting the impact of Wednesday’s recession news and keeping up sterling’s popularity as an alternative to a troubled Euro.

USD

Data released yesterday had conflicting effects on the currency, with unemployment claims posting negative figures but pending home sales coming out not only positive, but well ahead of expectations. The U.S. Labor Department said the number of applications for unemployment was little changed from the previous week, a sign that hiring will likely remain modest. After the disappointing report, the Dollar fell to a three-week low against the Euro. The Dollar recovered from those lows after The National Association of Realtors said that pending home sales rose to the highest level in nearly two years. That’s as a sign that the U.S. housing market is slowly improving. Gold futures rallied Thursday, buoyed by a progressively weaker Dollar and expectations of additional monetary stimulus.

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Written by Tom Tong

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