Euro: Why did Moody’s reprieve fail to lift EUR? – MUFG

Sentiment towards the Euro remains under pressure from higher European natural gas prices, softer French PMI readings and persistent fiscal and political risks. MUFG’s Derek Halpenny and Lee Hardman point out that, despite a modest rebound following recent declines against the Pound and Japanese Yen, the Euro remains October’s weakest G10 currency. With the ECB meeting approaching, Moody’s decision to retain France’s Aa3 rating on negative watch provides little support.

How are French risks weighing on the Euro?

"The euro has gained modestly at the start of the new week after falling to fresh year-to-date lows against the pound and yen. It is currently the worst performing G10 currency this month undermined both rising energy prices and heightened investor concerns over fiscal and political risks in France."

"The price of natural gas in Europe has risen sharply this month by more than a third lifting it above EUR 90/MWh heading into the winter reinforcing stagflation risks for the euro area economy. So far this year the euro area economy has proven more resilient than expected to the energy price shock but the release of the euro area PMI survey at the end of last week signalled that growth momentum may be about to soften."

"We don’t expect Moody’s decision to leave their rating on hold to bring much relief for French bonds or the euro, although it may prevent further selling at the start of this week ahead of the ECB’s upcoming policy meeting."

"The ECB’s upcoming policy meeting has more potential to be a bigger market mover, although we believe it is too soon to expect the ECB to announce policy measures to support government bond markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)