Euro: Moody’s reprieve fails to support EUR – MUFG
MUFG’s Derek Halpenny and Lee Hardman note the Euro has only modestly recovered after recent losses versus Pound and Japanese Yen, remaining the worst-performing G10 currency in October.
The euro has seen only a slight improvement in its value after recent declines against the pound and Japanese yen, ranking as the weakest-performing G10 currency in October. Factors contributing to this trend include higher European natural gas prices, weaker French PMI data, and persistent fiscal and political concerns in France.
Moody’s decision to maintain France's rating at Aa3, with a negative outlook, provides limited encouragement ahead of the European Central Bank's meeting. Despite the euro's modest recovery at the beginning of the new week, it remains the worst-performing G10 currency this month due to soaring energy costs and investor apprehensions regarding fiscal and political instability in France.
Europe's energy prices have surged over a third this month, reaching above €90/MWh, signifying growing stagflation risks in the euro area economy. So far this year, the euro area economy has demonstrated resilience against energy price pressures; however, the release of the euro area PMI survey at the end of last week suggested a possible slowdown in growth momentum.
It is anticipated that Moody’s decision to hold France's rating will offer little solace for French bonds or the euro. Although it might deter further selling of French assets at the start of the week before the ECB's policy meeting, it is still too early to expect the ECB to introduce measures to bolster government bond markets.
The European Central Bank's upcoming policy meeting holds more potential to influence the market, although it remains premature to anticipate any policy interventions aimed at supporting government bond markets.
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