S&P Downgrades Ireland for the Second Time This Year

The euro took a hit on Monday after Standard & Poor’s downgraded Ireland’s credit rating for the second time. The downgrade was the second in three months for Ireland and the move put downward pressure on the euro. The US dollar, which rallied last Friday, was helped by the downgrade and the dollar to euro rate was last down 0.4% at $1.3910. Marc Chandler of Brown Brothers Harriman stated, “The immediate reaction (to the downgrade) was to take the euro lower, which in any event was trading heavily.”

Better Than Expected US Jobs Data

The greenback extended last weeks gains as better than expected US jobs data and rising treasury yields affected currency exchange rates. The jobs data caused many to speculate that the Federal Reserve may raise rates early next year. The euro to dollar exchange rate fell as low as $1.3806, and the euro to yen rate fell 0.8% to 136.79 yen. Geraldine Concagh of AIB Group Treasury in Dublin stated, “The euro was under pressure after last week’s dollar bounce and the downgrade puts further pressure on it now.”

DXY Highest Since May 20th

The Dollar Index or DXY was at its highest since May 20th. Last Friday the DXY posted its best performance since last November. The Pound to dollar rate was up by 0.5% to $1.6068 but trading has been volatile due to political uncertainty about the future of Prime Minister Gordon Brown’s Labour Party. Support for Labour is the lowest in a century.

US Economy Improving

In addition to Ireland’s credit downgrade the dollar has been helped by investor perception that the US economy is improving despite the bankruptcy of auto giant General Motors. Although US unemployment is at its highest in 26 years the pace of US job losses has drastically slowed and investors see this as a sure sign the recession is easing.

Conservatives Score Big in European Elections

Currency exchange rates are expected to be affected by a resounding victory of conservative parties in Europe in recently held elections. Any shift in policies by the new conservative majority could easily affect currency exchange rates.

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