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Italy downgrade hits Euro

Italy downgrade hits Euro

The euro slipped towards two-year lows on Friday after a Moody’s downgrade on Italy that added to an already bearish stance on the single currency, while commodity currencies rose on growth figures from China that met expectations.

The euro fell to $1.2190 against USD, not far from a two-year trough of $1.2166 hit on trading platform. It fell to $1.2181 in the Asian session after Moody’s cut Italy’s credit rating by two notches.

Moody’s warned it could further cut the rating, which stands just two notches above junk, if Italy’s access to debt markets dried up.  The timing of the downgrade was particularly bad, coming hours before Italy heads to the debt market to raise 5.25 billion euros in bonds with maturities of up to 11 years. A huge jump in yields could exert pressure on the euro as it would fuel the risk of debt contagion in the euro zone.

The Italian downgrade means demand from international investors for the bonds on auction today will suffer. It is expected the ECB will lower rates further and launch unconventional measures in coming months, all of which will keep the euro under pressure.

There is a hopeful sign for the US labour market where claims for unemployment benefit fell sharply to their lowest level in four years.

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