Euro exchange rate poised to fall further after Spain sees credit rating downgrade

The euro exchange rate is poised to fall further on currency markets after Fitch downgraded Spain to just above junk status with the credit agency blaming policy elite for the deepening crisis that is crippling euro zone areas.

Latest Euro Exchange Rates

The euro moved back lower against the US dollar at $1.24910 this morning, earlier this week the euro climbed as high as $1.2625, its highest level since May 23. Against UK sterling the euro bought £0.80810 pounds.

Fitch Downgrades Spain

The ratings agency Fitch delivered a strong rebuke to Europe’s policy elite tonight when it sharply downgraded Spain’s creditworthiness and moved the euro zone’s fourth biggest economy a step closer to an international financial bailout.

Fitch cut its rating on Spanish government debt by three notches to “BBB”, a sign it thinks Spain’s ability to honour its debts has weakened. The agency also estimated that Spain’s banks would need at least 60bn euros (£49bn, $75bn), or as much as 100bn euros.

Spain is keen to avoid a full international bailout, which would be politically damaging and come with strict economic conditions.

“The dramatic erosion of Spain’s sovereign credit profile and ratings over the last year in part reflects policy missteps at the European level that, in Fitch’s opinion, have aggravated the economic and financial challenges facing Spain as it seeks to rebalance and restructure the economy,” the agency said.

Euro Interest Rates

The euro rallied smartly against the US dollar and other major currencies in choppy trading on Wednesday and Thursday, boosted by the European Central Bank that left both interest rates and the outlook for economic growth unchanged.

However the euro is likely to come under more pressure as investors mull over Fitch’s credit rating decision and what impact that may have on Spain and other euro zone areas.

Spain’s Euro Warning

Spain is warning that Europe’s single currency will unravel unless its leaders decide within weeks to centralise budget and tax policies in the euro zone and agree on a strategy to pool responsibility for failing banks.

With fears of a euro exchange rate meltdown having rapidly shifted from Greece to Spain, Rajoy is pleading for a direct eurozone rescue of his country’s banks, to avoid the humiliation attached to requesting a national bailout.

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Euro exchange rate poised to fall further after Spain sees credit rating downgrade