Late on Friday International ratings agency, Standard& Poor’s, lowered its ratings on nine eurozone countries including triple-A rated France and Austria, citing insufficient policy initiatives by European leaders to address ongoing systemic stresses in the eurozone. Germany retained its triple-A rating, but Italy, Spain, Portugal and Cyprus all saw their ratings cut two notches. Malta, Slovakia and Slovenia were all cut by one notch. There was no change to Ireland’s rating. While downgrades had been forewarned and thus didn’t come as any great surprise, the news at the same time is weighing on already fragile sentiment, reminding markets that Europe’s debt crisis is far from being resolved.

The euro fell sharply on Friday afternoon in anticipation of an announcement, hitting lows of $1.2625 versus the dollar. It has since stabilised versus the dollar but downside risks clearly remain, with fresh lows seen versus the yen in overnight trade. The markets focus now is on France’s short-term Treasury Bill auction later in the day and this week’s resumption of negotiations between Greece and private-sector creditors after they broke down on Friday.

Meanwhile, the IMF’s deputy director offered a gloomy outlook for the world economy this morning saying that the economic outlook for Europe is grim and the risks for the global economy are high amid the escalating euro-area crisis, posing challenges for Asia. The IMF is planning to lower its global economic growth forecast for this year but believes that a rise in liquidity would help banks and sovereigns deal with the crisis. It also called for more fiscal consolidation, though not at the expense of short-term growth, and more integration to ensure the viability and stability of the monetary union.