Moody’s Strikes

Moody’s warning that it may cut the “AAA” rating of some European nations, including Britain, coupled with downgrades of six Eurozone countries, has exerted pressure on high yield currencies today. Meanwhile, The Financial Times reported that Germany and other European nations may not be prepared to fully approve the bailout for Greece at the meeting set for tomorrow. This has shifted market focus to tomorrow’s European finance ministers meeting aimed at discussing the bailout package for Greece. At home, following an unchanged RICS house price balance released earlier today, data just out indicates that the annual consumer price inflation index eased for January.

Pound Sterling – UK Markets

Sterling has slipped against the US Dollar this morning, after Moody’s placed the UK’s credit rating on ‘Negative’ outlook. The agency further warned that the nation’s top credit rating could be stripped within a year as Britain was exposed to “deterioration in European economic conditions and financial landscape”. Meanwhile, Chancellor of the Exchequer, George Osborne, indicated that the change in Moody’s stance is proof that Britain should not deter from its plans to deal with the nation’s debt. Earlier today, the house price balance, as reported by RICS, showed an unchanged reading for January. This has highlighted the persistent weakness in the nation’s housing market. Data just released indicates that UK consumer price inflation eased to 3.6% for January, compared to a 4.2% rate posted for the previous month.

US Dollar – US Markets

Yet another downgrade of European nations, this time by Moody’s, has spooked markets. This has prompted investors to shun riskier assets and take refuge in the US Dollar. Calls for more stimulus failed to die down, after San Francisco Fed President, John Williams, opined that there will be a strong case for the US central bank to undertake a third round of quantitative easing, if there was no improvement in the current economic conditions. In a significant development, the US President, Barack Obama, has sent Congress a $3.8 trillion budget plan for fiscal year 2013 that seeks to achieve $4 trillion in deficit reduction over the next decade. Today’s eventful economic calendar includes retail sales data, which is expected to show an improvement for January. Other economic releases include import price index and business inventories.

Euro – European Markets

Moody’s rating downgrades across the Eurozone took the sheen off from yesterday’s optimism surrounding Greece and has sent the Euro below the 1.32 mark against the US Dollar. In the latest blow to the Eurozone, Moody’s downgraded six European countries including Spain, Italy and Portugal and warned that it may lower the “AAA” rating of some other European nations including Britain and France. Aggravating concerns further, S&P lowered its credit ratings on 15 Spanish banks. On the economic front, investors keenly await the German ZEW economic sentiment survey and Eurozone industrial production data, due later today. Market participants are also keeping an eye on bond auctions in several European countries. Cues from the European finance ministers meeting in Brussels on Wednesday, to decide whether to ratify a €130 billion bailout for Greece, will be critical in deciding market direction.

Other Currencies – Highlights

The Swiss Franc has advanced against the Euro and Sterling this morning, as traders turned risk averse and increased their position in safe haven currencies. This was after Moody’s Investors Service lowered credit ratings for European nations, including Italy, Spain and Portugal and placed ‘AAA’ ratings of France and the UK on ‘Negative’ outlook. Meanwhile, the threat of the Swiss National Bank (SNB) revising the Euro-Franc floor price remains high, after data yesterday revealed a further contraction in producer and import prices for January. Data last week had indicated a continuing deflationary trend in the Swiss economy, strengthening market speculation that the SNB may revise the Euro-Franc floor price to enable the economy to combat deflationary pressures.