- Standard & Poor's rating agency
Traders were caught by surprise by the ECB rate decision, while after S&P cut France's credit rating by one notch, the single currency extended its decline versus other currencies. During the last five trading days the Euro fell 1% against a basket of major currencies. Following a sharp drop on Thursday traders were expecting a period of consolidation before another major move, however, the pair lost 25 pips more after France's long-term foreign and local-currency grade was cut to AA from AA+, on the concerns that Francois Hollande's policies would fail to boost growth and fix public finances. Europe's second largest economy lost the top rating at S&P agency in January 2012, while the outlook for the economy is still stable. Soon after the announcement French government bonds plunged, sending 10-year yield 2 basis points higher to 2.39%. The downgrade underlines how France is struggling to build up steam in the wake of the debt crisis and recession. Moreover, President's policies have not helped to reverse a drop in country's competitiveness, even with the adjustments to labour laws and payroll taxes.
Meanwhile, the single currency, which has recently advanced more than 5% against the U.S. Dollar, is erasing almost all of its gain after Draghi's decision to cut rates. However, 50% of analysts in a survey conducted by Bloomberg are expecting the Euro to give back its increase by mid-2014. The bets are the highest in seven weeks, and significantly higher from 37% before the ECB meeting.