Euro flat despite French downgrade

The euro is broadly unchanged versus the US dollar, even though France’s credit rating was downgraded by Standard and Poor’s.

EUR/USD is trading at $1.3425, just about in positive territory, after recovering from the early morning downgrade announcement. Standard and Poor’s lowered France’s credit trading by one notch from AA+ to AA, citing unemployment and marginal real growth as the reasons for its decision.

The past 48 hours have raised some serious questions about the eurozone. Yesterday the European Central Bank cut interest rates by 0.25% to 0.25% – an all-time low. Interest rate cuts put pressure on the domestic currency, as savers will earn less on deposit, but this rate reduction also raises concerns about how weak the eurozone must be, if the central bank needs to lower interest rates. Could this reignite the eurozone debt crisis?

At 1.30pm (London time), the US will announce the non-farm payrolls and unemployment report. The consensus is for an increase of 120,000 new jobs and the jobless rate to tick up to 7.3%. The Federal Reserve is gearing its stimulus package around the jobs market, so if the report beats analysts’ estimates we could see the euro go below $1.34.

Spot FX EUR/USD chart

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