S&P Downgrades Nine Euro Area Nations - 16.1.2012

US Dollar The week is expected to be rich in events after Standard and Poor’s downgraded more than a half of the eurozone sovereigns last Friday, while some of them are scheduled to sell more debt this week. Asian stocks dived broadly, with Japanese Nikkei losing almost 1.5% by the end of the trading session to 8378.36. The dollar on the contrary rocketed on Friday to its highest level since September 2010 according to the currency’s index, which surged to 81.78. Euro On Friday S&P said the measures taken by European policymakers “may be insufficient to fully address ongoing systemic stresses” in the region and lowered long-term ratings on nine nations. The top ratings of France and Austria have been reduced by one step to AA+, Italy, Portugal, Spain and Cyprus have been downgraded by two steps and finally Malta, Slovakia and Slovenia – by one level. Thereby Germany remains the only holder of the triple-A grade in the Area, according to the agency. German Chancellor Angela Merkel told reporters in the aftermath that “The decision confirms my conviction that we have a long way ahead of us before investor confidence returns.” The euro fell to the lowest level since August 2010 against the greenback (1.2623) after the decision was announced and touched a new 11-year low against the yen – 97.03. Japanese Yen While the Europeans are tackling the debt crisis, the yen remains stable against the greenback (USD/JPY at 76.80-77.00 in Asian trading hours), not far from its record highs (75.57). Japan however has the highest debt burden among the developed nations. The debt to GDP ratio was close to 200% in 2010 and may have exceeded 200% in 2011, according to the OECD forecast. Japan’s Prime Minister Yoshihiko Noda said containing the country’s public debt load is critical as Europe’s fiscal situation “isn’t a house burning on the other side of the river… We must have a great sense of crisis,” he said on Saturday according to Bloomberg.