Euro Remains Weak as S&P Reduces Greece’s Rating to Selective Default

The euro remained weaker against other major currencies after yesterday’s slump as Standard & Poor’s reduced Greece’s credit ratings to selective default, adding to concerns about Europe’s debt woes.
S&P cut Greece long-term and short-term ratings to SD (selective default) yesterday. The rating agency explained its decision:

We lowered our sovereign credit ratings on Greece to ‘SD’ following the Greek government’s retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece’s retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring.

The rating cut reinforced view that Europe’s debt story isn’t going to end well. Losses were limited, though, as the European Central Bank prepares to offer €470 billion in three-year funds to European banks.
EUR/USD was at 1.3410 as of 1:48 GMT today after falling from 1.3464 to 1.3397 yesterday. EUR/JPY slipped from 107.99 to 107.41. EUR/GBP traded near 0.8467 following yesterday’s drop from 0.8471 to 0.8465.

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