EUR/USD Goes Crazy After Moody's Warns Spain And Debt Limit Vote Gets Delayed

EUR/USD intraday (courtesy freestockcharts.com)
After,"Majority Whip Kevin McCarthy (R-Calif.) told reporters shortly before 10:30 p.m. that there would be no vote Thursday night on the bill" (Washington Post)the Euro initially spiked against the U.S. Dollar and hit a high of 1.4361 off the 1.42820 low. However, at 1:20am, when "Moody's placed Spain's Aa2 ratings on review for possible downgrade", EUR/USD retraced the whole move and is now making new lows at 1.42693. So, which sovereign debt crisis wins? Here is more from the Moody's announcement.

"New York, July 29, 2011 -- Moody's Investors Service has today placed Spain's Aa2 government bond ratings on review for possible downgrade. Spain's Prime-1 short-term ratings are unaffected by today's action.

The initiation of the ratings review is driven by the following concerns:

1.) The continued funding pressures facing the Spanish government, which the precedent set for future euro area support arrangements by the official package for Greece is likely to exacerbate, and the resulting increase in risks to bondholders.

2.) The challenges posed to the government's fiscal consolidation efforts by the weak growth environment and the continued fiscal slippage among several regional governments.

Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments. Pressures are likely to increase still further following the announcement of the official package for Greece, which has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits. The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented.


Moody's views positively that the central government has been successful in meeting its near-term fiscal consolidation targets, but the rating agency nonetheless notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector." (Continue reading the announcement at Moodys.com)

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