Euro up as Spain holds on to investment rating

An announcement by credit ratings agency Moody’s that it does not intend to reduce Spain’s rating from investment grade helped the euro hit a four-week high against the dollar. Many analysts feared that the recession hit country might be downgraded to junk.

Over the past few weeks the euro has found support from expectations that Spain is on the verge of applying for a bailout from Europe. If this happens then the European Central Bank could begin buying up Spanish debt. This would see Madrid’s borrowing costs drop.

However it is still unclear if and when Spain will call for assistance and attention is now focused on a summit in Brussels at the end of the week where various European leaders are due to meet. Analysts are not sure how positive the results of the meeting will be and many are convinced Spain will not use it as an opportunity to ask for financial aid.

The decision by Moody’s to keep Spain above junk saw the euro hit $1.3125. The single currency rose to 103.51 yen, which is the highest it has been for a month. The Japanese currency is being held back by speculation that the Bank of Japan could introduce further monetary easing measures.

Traders are being cautious about buying euros with many expecting the currency to stay in range.