Euro Weakens On Moody’s Downgrade Of France

The euro slipped against the U.S. dollar and some other currencies Tuesday after Moody’s stripped France of its AAA credit rating, drawing attention back to Europe’s ongoing debt and growth troubles.

The ICE dollar index , which measures the greenback’s performance against a basket of six other major currencies, rose to 80.862 from 80.854 in late North American trade Monday.

The euro   slipped to $1.2795 from $1.2816, and to 103.97 yen from ¥104.17, surrendering some of the gains recorded against the U.S. and Japanese currencies the previous day.

Kathy Lien, managing director for foreign-exchange strategy at BK Asset Management, said that while Moody’s downgrade of France’s credit ratings by one notch to Aa1 followed a similar move by Standard & Poor’s several months ago, the action “shines a light” on Europe’s problems.

It also shows that the two largest countries in the common currency bloc — the other being Germany — aren’t immune to the stress in the region, she said.

Lien said Moody’s assessment that France’s economic growth assumption of 0.8% in 2013 and 2% in 2014 were overly optimistic was “really disconcerting, considering that 0.8% is extremely anemic growth.”

The drop in the euro also came as investors looked ahead to a Eurogroup meeting later Tuesday, with Sun Trinh, a senior currency strategist at RBC Capital Markets, terming the gathering as the “major event risk” for markets.

Euro-region financial ministers are expected to discuss, among other issues, a contentious proposal to extend the date for Greece to meet a targeted reduction in its debt.

“Once an agreement has been brokered — assuming there is also International Monetary Fund acquiescence — then we would expect the Eurogroup to approve disbursement of the next tranche of aid [to Greece],” Trinh said.

Meanwhile, the yen moved little against other major currencies even after the Bank of Japan left its policy interest rate and the size of its asset-purchase program unchanged, as widely expected in the wake of an expansion to the central bank’s easing moves at its last two meetings.

The U.S. dollar  was fetching ¥81.28 by late afternoon in Tokyo, down slightly from ¥81.38 in North American trade Monday.

The British pound  was changing hands for $1.5916, little changed from $1.5911, while the Australian dollar  was buying $1.0407, edging down from $1.0411.

Marketwatch