Euro pares gains after Moody's downgrades Greek bonds to junk level
The single currency initially traded with a firm undertone on Monday as euro surged above last Friday's high of 1.2153 to 1.2208 before staging a minor pullback. Although renewed buying at 1.2164 lifted the pair up and euro eventually hit an intra-day high of 1.2298 in NY mid-day, the single currency retreated from said high and ended the day at 1.2220 after Moody's Investors Service downgraded Greece government bond ratings by four notches to Ba1, which would be a junk status, but outlook was 'stable'. Moody's also downgraded Greece's short-term rating to not-prime from Prime-1 as the rating agency expected the Greece government would struggle to narrow budget deficit and maintain economic growth. DJI erased all early gains and ended the day down by 20.18 points at 10190.89 after Moody's downgrade.
Earlier, euro was supported as rebound in global stocks and upbeat European industrial data bolstered risk appetite. Nikkei 225 ended the day up by 1.80%, FTSE, DAX and CAC 40 were seen closing up by 0.74%, 1.28% and 1.96% while DJI once rose by 117 points before Moody's downgrade. Eurozone industrial production in April rose by 0.8% m/m and 9.5% y/y, which was the largest year-on-year percentage gain in almost 2 decades.
In other news, French President Nicolas Sarkozy met with German Chancellor Angela Merkel to discuss about overcoming deep-rooted disagreements on European economic governance. European Central Bank Governing Council member Ewald Nowotny said Europe's emergency measures are aimed at preventing the sovereign debt crisis triggering another banking and economic crisis.
Versus the Japanese yen, the greenback once rose briefly to 92.12 but the pair swiftly retreated from there and tumbled to 91.42 in NY afternoon as DJI pared all initial gains after Moody's downgrade on Greek bonds.
The British pound rose initially from 1.4545 and then climbed above Friday's high of 1.4760 to 1.4810 in NY morning in tandem with euro on the rally in global equities. However, cable retreated due to Moody's downgrade on Greece but the pair managed to hold most of its gains and ended the day at 1.4748.
The Bank of England's chief economists said 'Britain's economic recovery is likely to gather pace over the coming year, but the effects of the financial crisis, which has entered a new phase, will linger'.
Economic data to be released on Tuesday include: U.K. RICS house prices , Australia Reserve Bank's Jun Minutes , Japan BOJ rate decision , U.K. CPI, RPI , DCLG house prices , Germany ZEW index , EU Employment , Trade balance , U.S. Empire state mfg, Export price index, Import price index, Net LT TIC flows , NAHB housing mrkt index.
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