Reports circulated around the web yesterday that talks between Greece and its bond holders were building up towards a positive outcome and as a result market sentiment moved in favour of the riskier Euro, and away from the safe haven US Dollar and Japanese Yen.
The optimism in the Eurozone has been running concurrently to the recent credit rating downgrades announced by S&P last Friday. In a bold move Standard & Poor’s took jabs at 9 Eurozone countries’ credit ratings, with France and Austria the most notable victims (both were reduced from AAA down to AA+). In an even bolder move markets have decided to ignore the downgrades and pledge faith in the fragile Euro.
The European Central Bank’s January bulletin was naturally supportive of its own actions; it implored the positive affect that their Long-Term-Refinancing-Operation (LTRO) has had on Eurozone bank liquidity; reinstated its correct handling of the 1.0% interest rate in order to maintain inflationary levels above 2.0%; before stressing the likelihood of further Eurozone tensions impacting negatively on economic activity.
Eurozone bond sales performed surprisingly well with Spain selling a huge €6.61 billion of debt maturing in 2016, 2019 and 2022; the 10-year benchmark rate fell from 6.975% when the coupons were last sold in November to 5.403% earlier this morning.
France also took positives from the morning’s debt auctions with all of their maturities experiencing a fall in yields. It sold €2.96 billion of 2-year notes at a yield of 1.05%, €1.58 billion of 3-year notes at a yield of 1.5% and €3.4 billion of 4-year notes at a yield of 1.89%.
The perceived positivity emanating from the Eurozone has had negative impact on both the Pound and the US Dollar’s respective performances. The Pound has lost -0.26% against the Euro and reciprocally the Euro has gained +0.26% against the US Dollar – accurate as of 12:27GMT – the Pound to Euro Exchange Rate stands at 1.196 and the Euro to US Dollar Exchange Rate stands at 1.289.
The Euro is performing incredibly well against its closest rivals, especially considering the fragility of the 17-nation bloc in terms of Greece’s ability to agree a deal with its private investors; an untimely Greek default could wreak havoc in the Eurozone, and the threat of contagion would carry connotations of fatality.
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