How Will Currencies React to the Credit Downgrade?


I’ve received the babypips daily update & one of the topics featured is France’s credit rating is downgraded from AAA rating & I am wondering how currencies react when a countries credit rating has been downgraded?

I any thoughts/comments would be appreciated.

Kind regards

Kemal Hussein

Unlikely to be anything really noticeable.

This small report may be of some use to you which I found after a simple search.

[U]What would the impact of a downgrade be for investors?[/U]

Certainly, rating decisions are felt on the markets, although ratings agencies have been widely criticised for having too much clout in jittery markets during the financial crisis. They were widely attacked for failing to warn of the risks posed by certain securities, in particular mortgage-backed securities.

Losing your rating or being downgraded can, in some cases, have a fatal effect on your country’s ability to borrow money on the markets. But this depends on which country we’re talking about. Here Wikipedia explains and details which country has which rating.

In the short-term it is likely to make little difference for investors. It is unlikely to encourage widespread investment in the UK’s stockmarket, which is internationally diversified. Equally, it has had no appreciable effect on sterling.[B] However, in the short term markets would again be rocked.[/B]

UK Downgrade: The impact of ratings downgrades - Investing Strategy - Mindful Money

Excellent. Thanks guys.

So in reality a downgrade does not make any difference in the long-term however effect the price action in short-term.