Euro recovers from three-month low against USD as Portugal receives credit rating upgrade

Standard & Poor’s has upgraded Portugal’s credit rating from negative BB/B to stable, citing fresh evidence that European institutions will continue to support the country’s efforts to get its fiscal house in order.

As a result of the news the Euro strengthened, recovering from a three-month low against the US Dollar. The credit rating agencies decision came after finance ministers revealed their latest assessment of the Irish and Portuguese fiscal policies. In a statement, they said EU Finance Ministers commended the authorities’ strong commitment to their respective adjustment programmes, which have already been successful in addressing previously accumulated imbalances.

“We therefore anticipate that Portugal’s official European lenders are likely to extend their loans, thereby reducing the Portuguese government’s refinancing risks and, to a lesser extent, its interest costs, at the same time, we expect Portugal’s official lenders… to adjust Portugal’s fiscal consolidation path under the program, mostly to reflect the weaker-than-previously-assumed economic activity.” S&P said.

S&P said that it should make Portugal’s adjustment process more sustainable, both economically and socially, reducing the risk that the government will not comply with the programme. It warned however that it would cut Portugal’s rating if the nation’s politicians showed signs of diminishing commitment to the fiscal policies.

“We could raise the ratings if export performance turns out to be much better than our current expectations or if investment picks up significantly,” it said.”This would, in our view, support Portugal’s recovery and contribute to job creation, thereby strengthening the social contract. A more robust recovery would also contribute to a faster fiscal consolidation and debt reduction path, improving Portugal’s fiscal indicators.”

The Euro is also expected to strengthen further over the course of the morning ahead of today’s European Central Bank policy meeting. Economists are expecting the ECB to maintain the current interest rate at the record low level of 0.75%.