Dollar Soars as Euro Plunges on Greece Downgrade
The U.S. Dollar is surging against a basket of trade weighted currencies overnight following the news that the S&P Corp. downgraded Greece’s credit rating for the second time this year. This news has been particularly bearish for the Euro as it raises the possibility that more downgrades of Euro Zone sovereign debt are to follow. Investors now fear that the spread of bad debt throughout the region could trigger serious problems banking issues, curtailing the current economic recovery.
The downgrade news came on the heels of yesterday’s Federal Reserve report. While not actually a bullish report for the Dollar, the Fed’s carefully chosen language did nothing to damage the developing uptrend. The Fed essentially declared the financial markets healthy enough to begin removing emergency stimulus before its scheduled ending date on Feb. 1. The Fed cited “improvements in the functioning of financial markets” as the main reason to believe it would let its financial aid packages expire on time in February.
The Fed also added that labor issues were “abating”. This comment was influenced by the drop in the unemployment rate from 10.2% to 10.0%. The Fed upgraded the growth outlook as improvements in economic data since its last meeting in November warranted the following comment, “economic activity has continued to pick-up and that the deterioration in the labor market is abating.” Finally, the Fed added that “financial market conditions have become more supportive of economic growth.”
