Euro—last week's main underperformer

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"The downgrade reflects our view that the French government's current approach to budgetary and structural reforms to taxation, as well as to product, services, and labour markets, is unlikely to substantially raise France's medium-term growth prospects."
- 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.

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