ForexSpace.com - Forex news this morning reports Standard & Poor’s has lifted the credit rating of Greece to CCC with a stable outlook. This was much in line with expectations, given the lengths gone to by Athens given its completion of what amounts to the biggest sovereign debt restructuring in financial history. S&P’s nonetheless expressed a view that, while the exchange has “in our view, alleviated near-term funding pressures, Greece's sovereign debt burden remains high. The ratings could be lowered if we believe that there is a likelihood of a distressed exchange on Greece's remaining stock of commercial debt.”

Furthermore, Neal Kimberley (pictured), FX analyst with Thomson Reuters, tells me how, despite Greece's credit rating having been effectively hoisted out of default territory, S&P’s also warned that “the recession and a May 6 general election were posing risks to fiscal adjustments needed to further cut Greece's debt.”

There’s certainly no questioning that Greece has highly uncertain economic growth prospects, with its recession expected to continue in 2012, while political consensus for deficit-reduction measures is weakening. Also, as S&P’s confirmed, the Hellenic republic runs a very large external deficit. In February this year, we recall how private holders of Greek government debt accepted a restructuring involving the write-down of 53.5 percent of their investment, alongside a EUR130 billion bailout agreement between the Athens and its official lenders, the EU and IMF.

Elsewhere, ratings agency Fitch says it expects Spanish and Italian regional debt sustainability to improve. But as Kimberley says: “I think we can safely assume PM Monti’s honeymoon is over as Italian PMI sinks like a stone.”

Staying with matter European, FOREX.com’s research director, Kathleen Brooks, reports back on the morning session which has been fairly volatile for FX markets, “with the euro starting off looking fairly well supported at 1.32 and then falling through the floor on the back of some weak euro zone economic data. The first blow to the single currency came from Germany where it was reported that the unemployment rate jumped by 19,000 in April and the unemployment rate had been revised up to 6.8 percent from 6.7 percent for March, which is where it remained last month. This is the largest increase in German unemployment for three years. Although a German labour market official said the decline could be down to the timing of Easter, it was enough to spook the markets,” Brooks concluded.

More pointedly, and leaving aside the other dismal euro zone PMIs, the rise in the German jobless total should ring alarm bells as this is occurring, in many forex traders and top forex brokers’ views, before the huddled masses of the periphery really start to wend their way to Deutschland. If Germany, the economic ship of state for the euro zone is beginning to list, “then it’s time to think about lowering the lifeboats,” quips Kimberley.

On that basis, this morning’s measured fall in eurodollar to 1.3145-50 appears to be more than a modest reaction, which Kimberley, for one, attribute to two things: “A relative lack of Hedge Fund activity currently in the pair given its recent middling price action; and secondly to the existence of circuit breaker bids by euro zone exporters picking up cheap(er) hedges and central bank demand, (either to tweak reserves or to take sting out of moves to safeguard the short volatility possies they have previously taken).”

In the wake of a morning of otherwise pretty grim data emanating from the single currency bloc, the comments from former People’s Band of China adviser Yu are hardly likely to offer any scour to the euro’s after it slumped across the board. Speaking in Manila this morning, Yu said that the European crisis is far from over and that the worse may actually be still to come.  

Drew Hillier. Editor