Ireland Downgrade and ECB interest rate

Nowadays I've been writing about the Euro Zone and how their government decisions impacts on the commodities prices and currency appreciation/depreciation. Today I would like to discuss about another impact, specifically about the Ireland Downgrade to Baa3 from Baa1. First of all, it is necessary to explain what are those notes. There is a table below that is very didactic to learn. Note.: U.S sovereign debt is a triple A.

Moody's		Standard & Poor's		Fitch Ratings		Commentaire
Long terme	Court terme	Long terme	Court terme	Long Terme	Court terme
Aaa	P-1	AAA	A-1+	AAA	F1+	Prime. Sécurité maximale.
Aa1		AA+		AA+		High Grade.Qualité haute ou bonne.
Aa2		AA		AA
Aa3		AA-		AA-
A1		A+	A-1	A+	F1	Upper Medium Grade. Qualité moyenne.
A2		A		A
A3	P-2	A-	A-2	A-	F2
Baa1		BBB+		BBB+		Lower Medium Grade. Qualité moyenne inférieure.
Baa2	P-3	BBB	A-3	BBB	F3
Baa3		BBB-		BBB-
Ba1	Not Prime	BB+	B	BB+	B	Non Investment Grade.Spéculatif.
Ba2		BB		BB
Ba3		BB-		BB-
B1		B+		B+		Hautement spéculatif.
B2		B		B
B3		B-		B-
Caa		CCC+	C	CCC	C	Risque substantiel. En mauvaise condition.
Ca		CCC				Extrêmement spéculatif.
C		CCC-				Peut être en défaut.
/		D	D	DDD	D	En défaut.
				DD
				D

Markets around the globe got concerned this week due to some sovereign problems in Portugal and Ireland. In the beginning of April Moody's downgrade Portugal sovereign debt and now was Ireland's turn. Is there some correlation between Ireland downgrade and ECB interest rate increase? For Moody's, yes.

Moody's says that Irish government's financial strenght may suffer as a result of what may be the first of a series of policy rate increases by the European Central Bank to contain the inflation in euro area. The increase can mean less consumer spending and a strengthening of the euro may negatively affect exports.

Inflation is a big problem for every country around the globe. There is a well-known trade-off. "Do I keep the interest rate low and stimulate the economy or rise interest rate, slowing down the post-recession economy in order to contain the inflation?" Especially after the mortgage crisis this trade-off has been experienced by many countries such as China, Brazil, Euro Zone and some countries in Asia. This is a hard problem to solve and that's why in the previews post I wrote that gold will reach $1.500,00 in the coming months...

Silver and Gold at a new all-time high

When Jean-Claude Trichet reported a quarter-point increase at the benchmark interest rate in Euro Area, gold and silver price reached a new all-time high - silver pushed above $40 a troy ounce for the first time since 1980 and gold to $1474,19. Why did this happen?
Gold and Silver are well known among investor as the safe haven to curb inflation efects. So when the European Central Bank President announced the increase, investors got concerned about the inflation and migrated to those assets.

Country	Interest Rate	Growth Rate	Inflation Rate	Jobless Rate	Government Budget	Exchange Rate
Euro Area	1.25%	0.30%	2.60%	9.90%	-6.30	14200

Furthermmore, the hike on those commodities price this week has also to do with the potencial shutdown of the US Government due to some divergences between Republicans and Democrats. The deal was to cut $100 billion in fiscal spending in 2011 BUT the agreement cuts $39 billion in atual spending, which is $22 billion less than bill the House passed in Feb by President Obama's fiscal 2011 budget request - $78.5 billion.
Analysts and investors now see $1,500 gold and $50 silver as likely to be breached in the coming months, as the potential for looser monetary policy for longer in the US weighs on the dollar. Why?
Commodities are usually priced in dollar, so a weaken dollar boosts raw materials prices and can valorize other currencies such as Real, the Brazilian Currency and the Euro.