Moody's kept France's rating at Aa3 with a negative outlook late on Friday, despite wide market expectations of a downgrade. The decision assumes a deficit-reducing 2027 budget will be adopted. EUR/USD seems to have taken a breather around 1.12.
Moody's left France's rating unchanged at Aa3 with a negative outlook late on Friday, despite wide market expectations of a downgrade. Danske Markets called the outcome surprising and said it could possibly help ease the pressure on French government bonds.
Moody's budget assumption and the protest risk
The agency's credit rating decision assumes that a deficit-reducing 2027 budget will be adopted and that financing costs and social tensions will abate somewhat in the coming months. Moody's expects a deficit of 5.2% of GDP next year, down from the 5.4% the government expects this year but slightly above its 5% target.
However, the protests, which Moody's warned could constrain fiscal consolidation efforts, continued over the weekend, albeit more calmly than the week before. Unions have also called for a nationwide strike on 5 November.
EUR/USD holds near 1.12
Meanwhile, EUR/USD seems to have taken a breather around 1.12, and Danske Markets expects the cross to move gradually lower from here.
Euro area data adds context. The October flash composite PMI fell to 51.9 from 53.1, against a consensus of 52.7. Danske Markets says the report supports the ECB's gradual hiking approach, with a stocktaking meeting on Thursday and the next rate hike in December.
Source: ActionForex
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