S&P Lowers Rating on Spain - Euro Drops

Last updated 1/19/2009 9:00 AM EST (GMT -5) 0 Comments - Add your comment

Boris Schlossberg

Director of Currency Research, GFT

Standard and Poors lowered the sovereign bond rating on the Kingdom of Spain from its highest level of AAA to AA+. S&P noted that “Current economic and financial market conditions have highlighted structural weaknesses in the Spanish economy that are inconsistent with a AAA rating.”

The lowering of Spanish debt follows similar moves that cut Greek debt to A- and a waring on Portuguese debt only a week ago. The S&P also also reduced the outlook on Ireland’s rating to negative from stable. The move highlights the growing tensions within the EZ as various members of the union struggle to combat the fallout from the global credit crisis that has devastated the European banking sector.

Today's news also puts into focus the question of whether the euro, as a currency without a country, can withstand the stress of the current economic slowdown The EUR/USD pair declined in the immediate aftermath of the news and remains near day's lows as traders become increasingly concerned about the credit worthiness of the individual members of the union.

If the credit rating gap between the Northern and Southern members of the Eurozone continues to expand the downward pressure on the euro is likely to escalate with the pair foreseeably dropping into 1.2000's region by end of this week, if those concerns are not allayed.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.