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Forex Flash: Friday Italy downgrade in focus this morning - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that the key focus this morning will be the downgrade by Fitch of Italy’s sovereign credit rating from A- to BBB+ on Friday evening.

He comments that Fitch cited the inconclusive election result and the “non-conducive backdrop for further structural reform” as the factors behind the decision. The Fitch ratings is still three levels above junk and one above Spain. he feels that the one to watch from here is Moody’s which has Italy rated at Baa2 leaving just one further level before junk status. S&P has Italy rate at BBB+. Meanwhile, Halpenny notes that the Italian 10-year yield over Germany has widened by about 10bps this morning and the reality is that the financial markets reassess sovereign risks on a daily basis and hence, the decision of Fitch is unlikely to have a notable impact on yields or the euro.

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