Moody's downgrades France to Aa1 from Aaa

By FXstreet.com | November 19, 2012 AAA

FXstreet.com (Barcelona) - Moody's has downgraded France's government bond rating to Aa1 from Aaa, maintains negative outlook. EURUSD nosedived after the negative news, losing over 30 pips in the blink of an eye to set a low at 1.2775 from levels above 1.28. Moody's decision to downgrade France and maintain the negative outlook reflects the following:

From Moody's:

1.) France's long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.

2.) France's fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand, and in the longer term due to the structural rigidities noted above.

3.) The predictability of France's resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France's exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing. Moreover, unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption.

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