By Marcus Leach
Standard & Poor's, the credit rating agency, have warned that they are to downgrade two of the eurozone's six triple A nations.
This news would be a massive blow to the already fragile eurozone, as the debt-crisis looks set to take a dramatic turn for the worse.
It is believed that France and Austria are to be the two nations who will be downgraded, although this has yet to be confirmed.
“The talk of a downgrade to French and Austrian debt has sent the euro into sharp decline, as well as other risky assets," Richard Driver, analyst for Caxton FX, said.
“While it’s not an official statement — it looks like an unnamed government source has triggered the speculation - the market has certainly taken it very seriously.
“The markets were due a pullback considering the bullishness we have seen this week looked overdone given that this S&P cloud was still overhanging.
“We all knew S&P was going to get its axe out but it has come a little sooner than expected and it only reinforces our bearish view on the single currency.
“It sounds like Germany’s AAA-rating will be left alone, which is a relief, but this French downgrade is a major development if it’s confirmed - Sarkozy will be furious.
“The big question is by how many notches France’s rating is to be cut, one is manageable but two will really test the euro’s resolve.
“Additionally, China will certainly be reviewing its holdings in the eurozone as a result of this.”
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