Wednesday, 15 Dec 2010

EUR Tumbling on Possible Spain Downgrade

The euro tumbled Wednesday, as news that Moody's Investors Service had placed Spain's credit rating on review for a potential downgrade revived market concerns about Europe's sovereign debt crisis.

Earlier Wednesday, Moody's warned it may downgrade its ratings on Spain's government debt, adding that its banks may require as much as EUR90 billion in recapitalization funds. The country is grappling with a moribund economy and a troubled banking sector, which have unsettled markets and become a microcosm of the euro zone's recession-battered economies.

With the dollar broadly underpinned by encouraging data and signs the U.S. economy's pace of recovery is accelerating, the single currency fell more than a percent on the day in midafternoon trading.

The ratings warning by Moody's reverberated in light market conditions, and reminded investors that Europe is far from out of the woods. However, traders said most market participants were avoiding placing large bets ahead of the Christmas holiday. Spain is scheduled to issue debt Thursday, and traders will be watching to see how much demand there is in the wake of the latest ratings warning.