Euro Sinks After Moody's Downgrades Catalonia
The euro lost a bit of ground on Tuesday morning trading at 1.3037. This loss followed news that Moody's Investor Services downgraded the ratings on five Spanish regions, including Catalonia. Reuters reported on Tuesday that Moody's cut ratings down one or two points each, citing limited cash and upcoming bond repayments.
This came as a surprise to some, after Spain's rating was preserved by the company earlier in the month. Catalonia's downgrade is especially important to investors, as it accounts for a fifth of Spain's economic output.
The downgrade came as the euro was pushing toward recovery when Spanish Prime Minister Mariano Rajoy secured a majority vote in his home region of Galicia. This win has boosted confidence in his austerity plan, and gave investors hope that he will ask for a bailout soon. Many are hoping that when the elections are over, he will be willing to ask for a bailout and trigger the European Central Bank's bond buying program.
Uncertainty over a Spanish bailout plagues the euro and has created a ceiling on gains as some worry about the possibility that he may not request one at all. Rajoy stated on Friday after the European Union summit that he was uncertain whether or not he would ask for a bailout.
His lack of urgency to ask for aid is creating negative pressure on the euro, and keeping the euro from realizing its potential gains. Though Rajoy has said otherwise, most are still counting on an eventual bailout and prices have remained steady based on the possibility of ECB intervention.
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