Rating agencies often publish sovereign rating decisions on Friday evenings after European markets close. A downgrade or outlook change can affect a currency at the Sunday open.
What to know:
In the EU, agencies publish a calendar of planned sovereign rating dates each year.
Announcements usually come after the close, so the reaction appears at the weekly open or in bond markets on Monday.
Outlook changes (stable to negative) can matter as much as actual rating changes.
Market impact:
Usually larger on bond yields and spreads than on the currency.
For smaller currencies or countries with weak finances, the FX effect can be significant.
For major currencies, the effect is often brief.
Checking the agencies' calendars for the countries behind your currencies takes a few minutes and avoids surprises on Monday mornings.
Do you follow sovereign rating calendars, and have you seen a rating change move a currency?
I mark EU sovereign rating dates on the Friday calendar the same way I mark NFP. A negative outlook after the European close has already given me a gapped Sunday open on EURGBP that my Friday flat rule was meant to avoid.
For majors the FX move is often brief, so I care more about the bond yield jump than the spot spike. On smaller names the currency can reprice for days, which is outside my scalp horizon anyway.
Outlook shifts have mattered more than the rating notch itself in my notes. Stable to negative on a peripheral name once pushed EURUSD soft into Monday London even without a downgrade.
I check the agency calendars once a month and add flags for any currency I hold past Friday. That takes less time than one bad Sunday gap cost me.
Have you ever held a position into a known Friday rating window on purpose, or is flatten Friday your default? Flatten Friday is mine unless the thesis needs the weekend.
