The euro rallied broadly this afternoon following a media report that the IMF would increase its funding capabilities, and was also boosted by Fitch ratings agency appearing to soften its stance regarding its outlook on Italy.
An analyst at Fitch said that the ratings agency did not expect Italy to default. This was a lighter outlook for the debt-laden country, which was hit by warnings from the agency that said a two-notch downgrade to Italy was an option. These comments were rapidly followed by a news report that the IMF proposed increasing its lending pool to $1 trillion. Though a separate article later reported that the IMF is estimating that it needs to raise up to $600 billion in new resources, to lend to struggling eurozone countries.
Further supporting the euro was solid demand seen at a German auction of two-year notes, while Portugal managed to sell short-dated paper without a hitch, despite being downgraded to ‘junk’ status by Standard & Poor’s last week. Investors, however, will remain cautious today as Greece restarts talks with creditors over a debt deal later today. If Greece is unable to reach a deal with its creditors, it could result in its ‘imminent’ and disorderly default.