This story was updated at 1:15 p.m. EDT.

By BBH FX Strategy

Greece was cut a full step (three notches) to BB+ by S&P from BBB+ previously, moving it into junk status. Negative outlook was kept in place.

This is a very, very aggressive move, but the rating agencies are clearly trying to play catch-up after missing the boat on this earlier. We saw this reaction during the Asian crisis.

Right before the Greece downgrade, Portugal was cut two notches to A- by S&P, which kept the negative outlook. This, too, was a very aggressive move, as our own sovereign ratings model puts Portugal at A/A2/A vs. A-/Aa2/AA- actual. Fitch just cut Portugal in March to AA- from AA previously, but it's clear that both it and Moody's remain well behind the curve as Portugal is clearly not a double-A credit.

We have always said that the ratings situation remains fluid, as higher borrowing costs for Greece and others automatically and quickly feed into a more negative debt trajectory.

Note that Moody's rating for Greece is A3, which is the same as A-. As long as one rating agency has Greece BBB- or above, the ECB will still allow its use as collateral. Of course, the S&P's aggressive move is significant and cannot be for European banks, which hold Greek bonds, including Greek banks themselves, but Greece is thus far not cut off from the ECB.

Second, S&P assigned a recovery rating of 4 to Greek debt issues. This means that S&P expects on average that debt holders may get only 30% to 50% of their investment back in the event of a debt restructuring or payment default.

The euro has been hit hard today. A big outside down day (trading on both sides of yesterday's range and most likely closing below yesterday's low near $1.3292. The low for the year was set last Friday just ahead of $1.32. Below here the next big level is $1.30.

The dollar-bloc, emerging markets and equities are under strong pressure. Unwindings of these positions may be helping the yen.

The dollar may find some support in the JPY92.40-60 area. The safe haven flows are lift U.S. Treasury prices, with the 10-year yield down 11 bp and the 2-year yield off 8 bp as the auction results are awaited.

Our rating snapshot from March has clearly changed in light of the huge spike in borrowing rates for the periphery. But even with such fluidity, we remain confident in our call that there are still significant downgrades ahead for the peripheral euro zone.

Indeed, given all the recent pressures on the periphery, we thought it would be helpful to summarize our sovereign rating calls for the euro zone that were contained in our most FX Quarterly dated March 22.

To be clear, our model has been highlighting significant downgrade risk for Portugal, Ireland, Greece, and Spain since June 2009. The problems facing these peripheral countries are nothing new, and these problems are also not likely to be solved over the near-term.

As such, we expect continued pressure on the bonds of the periphery, which likely will continue to weigh on the euro as well. The euro had been holding above 1.33 even after the Portugal downgrade, but support broke after the Greek news hit the wires. The April 23 low of 1.3202 is the next target and potential support. Here are four points to consider.

No. 1. After this downgrade to A- by S&P, we believe Portugal is still vulnerable to further moves given the negative outlook that remains in place. For sure, Moody's Aa2 and Fitch's AA- need to be adjusted downward.

No. 2. After losing its AAA status from both S&P and Fitch early last year, Moody's downgraded Ireland to Aa1 in July, followed by another Fitch downgrade to AA- in November. It still remains vulnerable to further downgrades as our model now rates Ireland as A/A2/A vs. actual ratings of AA/Aa1/AA-.

No. 3. Despite this downgrade to BB+ by S&P and the Apr downgrade to BBB- by Fitch, Greece is vulnerable to further downgrades even though our model rates Greece as BBB/Baa2/BBB vs. actual ratings of BBB+/A3/BBB- .

No. 4. After losing its AAA status from S&P last year, Spain still remains vulnerable to further downgrades from the other agencies. Our model rates Spain as A/A2/A compared to actual ratings of AA+/Aaa/AAA, and there is no way it holds onto its AAA status in this current environment.

Note that bond and CDS markets are already pricing in many of the downgrades that we are looking for.

With regards to the core euro zone, we feel that Germany and France entered the crisis in relatively good shape and so they too have held up well as the crisis intensified. While their economies slowed sharply, their structural imbalances were limited compared to the euro zone periphery.

That periphery is really where the bulk of the downgrades have been seen in Europe and is also where future downgrades are likely to be concentrated. For now, we see no ratings pressure on Germany, France, or Austria. Switzerland's ratings are also correct, in our view.

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