Euro Plummets To 1-year Low Against Yen As S&P Warns On Greece Rating

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Thursday in Asia, the euro slumped to a 1-year low against the yen and a 6-day low against the dollar as the rating agency Standard & Poor's warned on Wednesday that it could downgrade Greece by one or two notches within the next month, which could hinder the country's deficit-cutting plan.

News of another downgrade comes amid a nationwide strike by unions in the public and private sectors that has virtually paralyzed the country. The unrest has sent Greece's economy into a tailspin and made it tougher for the country to pay off a debt of 20 billion euros which is set to mature over the next few months. Greece is struggling with a deficit estimated at 12.7% of gross domestic product last year, four times the ceiling set by European Union budget rules. Credit agencies have become increasingly pessimistic on Greece, which has a poor track record of debt management.

S&P cut Greece's rating twice in December to BBB+ and signaled at the time it may lower it again. Earlier this month, Moody's Investors Service warned its rating on Greece, which it downgraded by one notch to A2 in December, was likely to face another downgrade. Moody's rating is two notches above its peers.

Since its rating last fell by a notch to BBB+ in December, the Greek government has presented a 2010 update of its stability program and has announced additional measures, including a freeze on public sector wages and higher fuel taxes to reinforce its goal to cut its 2010 general government deficit, measured as a percentage of gross domestic products, by four percentage points to 8.7% of GDP.

But S&P said it views those steps as reasonable toward reducing the public debt burden.

During Asian deals on Thursday, the euro fell to a 1-year low of 120.48 against the US dollar. That was down 1.3% from yesterday's close of 122.10. If the euro-yen pair weakens further, it may target the 113.6 level.

The euro that plunged to a record low of 122.09 against the yen in January 2009 gained more than 12% and reached a 7- 1/2 -month high of 139.25 in June 2009.

Although the euro-yen pair bounced between 127.0 and 138.6 through the rest of last year, it slumped in January 2010 as the Greece woes weakened the European currency. Thus far this year, the euro-yen pair has lost 9.7%.

The euro slipped to a 6-day low of 1.3453 against the US dollar in Asian deals on Thursday. The next downside target level for the euro-dollar pair is seen at a 9-month low of 1.3445 and if the pair falls further, it may target the 1.30 level. At yesterday's New York session close, the pair was quoted at 1.3540.

The euro has been steadily declining against the dollar after it reached a 15- 1/2 -month high of 1.5146 in November 2009. Since then, the euro-dollar pair has depreciated more than 11% and touched a new 9-month low of 1.3445 on February 19, 2010.

Last week, the dollar was supported by an unexpected discount rate hike by the U.S. Federal Reserve. This was the first hike in the rate Fed charges to banks for direct loans in more than three years.

The Federal Reserve Chairman Ben Bernanke suggested during a congressional hearing yesterday that U.S. low interest-rate policy is likely to be in place for the time being because the job market is weak and inflation will remain subdued. But he added the Fed will begin monetary tightening ''at some point'' to stem inflationary pressures.

Although the euro-dollar pair recovered from last Thursday's 9-month low, it weakened again after hitting a 6-day high of 1.3692 on February 23 after a report showed that the German business confidence unexpectedly declined in February.

German Chancellor Angela Merkel said that the euro is in a difficult position since its creation but will survive, according to a newspaper report published yesterday.

Merkel told that confidence in the euro can only be restored if Greece and other highly indebted countries attack the problem at its roots.

Against the U.K. currency, the euro declined slightly in Asian deals on Thursday. At present, the euro-pound pair is worth 0.877, down from yesterday's close of 0.8790. If the euro-pound pair slides further, it may target the 0.875 level.

The euro jumped to a 12-day high of 0.8838 against the pound on February 23 as the Bank of England Governor Mervyn King said the U.K.'s recovery was fragile and risks to the Monetary Policy Committee's central view of a gradual recovery remained to the downside. But the euro eased 1% since then.

In Asian deals on Thursday, the euro bounced between 1.4633 and 1.4644 against the Swiss franc. The euro-franc pair closed yesterday's trading at 1.4640.

The euro-franc pair that rose to a 5-day high of 1.4688 on February 23 on rumours of intervention by the Swiss National Bank pared its gains amid a dismal German IFO report. The euro is currently down 0.3% from Wednesday's 5-day high against the franc.

Investors are now likely to focus on the European session, in which the French consumer confidence indicator for February, PPI for January, Swiss employment report for the fourth quarter, Italian business confidence for February, German unemployment rate for February and the Euro-zone economic confidence report for February are expected to influence trading.

From the U.S., the durable goods orders report for January, weekly jobless claims data for the week ended February 20 and the house price index for December have been slated for release in the New York session.

Thursday in Asia, the euro slumped to a 1-year low against the yen and a 6-day low against the dollar as the rating agency Standard & Poor's warned on Wednesday that it could downgrade Greece by one or two notches within the next month, which could hinder the country's deficit-cutting plan. (Market News Provided by RTTNews)