Biz News

Will Euro Survive?

Where the Euro is sailing to? What will be next step of credit rating agencies?

Posted: Dec 2011

The euro exchange rate plunged below the $ 1.30 on the currency markets last week for the first time since January 2011. It seems that investors fear the credit rating of the European Union members will downgrade, as summit of its leaders did not bring a complete solution to debt crisis.

The exchange of the euro against the U.S. currency sank 2.6 percent last week, at $ 1.3042, while against the Japanese currency weakened 2.2 percent to 101.42 yen. On the other side the U.S. currency, strengthened against the Japanese Yen, so the price increased by 0.15 percent to 77.74 yen.

Euro is under a pressure as the market assessed that the agreement of European Union leaders on strengthening fiscal discipline is not sufficient progress in resolving the debt crisis. Moody's agency stated on Monday that they plan to review the credit ratings of all 27 EU member states.  The rating agency Fitch told that they are under the pressure to revise ratings as well. The Standard & Poor's agency already initiated revision of ratings of 15 of the 17 euro zone countries for possible reductions.

Therefore, the euro rate plunged to its lowest level in 11 months, 1.2945 to dollar.

However, soon the price of the euro returned back above the psychologically important level of $ 1.30.

"If a further deterioration in the debt crisis in the euro area occurs, if lowering the credit ratings of a number of countries happen, or new problems in the banking sector appear, levels of $ 1.30 will not be sustainable" said Arne Lohmann Rasmussen, an analyst at Danske Bank.