Greece’s Debt Rating Downgraded

Things just seem to be getting worse every day for the beleaguered Euro. Recent data from the Euro Zone has been dismal at best. In the latest round of bad news for the Euro Standard and Poor’s downgraded Greece’s sovereign debt rating putting even more pressure on the Euro.

ECB Cuts Rates

The long awaited rate cut by the European Central Bank was realized today (Jan. 15^th, 2009). The central bank cut rates by 50 bps to 2.0%. Many Forex traders expect the ECB to cut rates even further in the near future. In mid-morning trading in New York, the euro fell to a five-week low of $1.3048. News of a request by the Bank of America for more government aid added to concerns about mounting credit losses in the financial sector. This, in turn, depressed risk appetite sending forex traders and investors to the dollar seeking a safe haven.

ECB ‘Behind Curve’ Addressing Problems

Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago stated, “As problems in the U.S. financial markets elevate we are seeing again risk aversion-mode in currency trading. And in that mode, the dollar benefits. On top of that, there’s no doubt the ECB is behind the curve, which does not help the euro.” During the global financial risk aversion has helped the US dollar to retain its strength.

ECB’s Rates Lowest Ever

The ECB, which has been seen by many Forex traders as slow to lower borrowing costs, reduced interest rates to 2.0 %from 2.5 %, its lowest rate ever. ECB president Jean-Claude Trichet has sent mixed signals about the timing of the next rate cut. Many Forex traders see Trichet’s talk of both inflation and growth risks and see concerns about inflation as misplaced. Economic data from the Euro Zone is deteriorating and many Euro Zone countries have seen their credit ratings cut or are at risk of future cuts.

Many Forex traders have seen the ECB’s stance as inflexible and consider the Euro Zone behind the curve in addressing economic problems. This week has been a wild ride for Forex traders and investors.

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