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Confusing reports that Moodys may lower UK rating send sterling lower


A tough week continues for sterling, as before markets opened this morning we saw a small rest bite in cable with GBP/EUR trading sideways, albeit to the downside. The sell-off in the value of the dollar has helped cable post more gains this week as we saw GBP/USD trade in the $1.6450 range. Stocks advanced after ECB President signalled his support for Greek government bond rollovers, lifting demand for riskier assets. Sterling gained versus the dollar for the third day in four. Data showed UK home prices rose 0.1% in May, following a 1.4% decline the previous month. The pounds advance against the greenback, which looks relatively weak across the board, is in stark contract to GBP/EUR. The pound weakened for a sixth day against the euro, as sterling touched its weakest level on record today in Bloomberg Correlation Weighted Currency Indexes, a measure of 10 developed-market currencies. The big move this morning came as a shock to the markets, as market chatter that Moody’s may lower the UK’s rating, sending the pound spiralling down against most major currencies. Half a cent was lost immediately against the single currency as we fell below the 1.1150 level, start­ing out the morning session trading just above 1.12. Moody’s have since tried to calm market fears by saying they think the UK outlook is stable.

No major data.



Yet another strong performance was posted by the single currency yesterday which continues to fly in the face of most peoples expectations on the euro considering the debt concerns raging through certain Southern European countries. With this in mind, surprising as it may be, the euro could soon challenge $1.50 versus the dollar and continue its advance on sterling if the ECB, as expected, on Thursday signals that it intends to raise interest rates next month. The common currency, which reached a one-month high against the dollar on Tues­day, continues to benefit from the contrast between strong eurozone economic data and a US economic recov­ery that keeps getting squishier, as last weeks jobs report underscored. Even continued worries about the fi­nances of parts of the eurozone haven’t dampened enthusiasm. It looks likely that we will see $1.50 before we see $1.39, probably within the next few weeks. Moreover the euro could continue to rally without any hawkish remarks from ECB President Jean-Claude Trichet on Thursday. If anything, Trichet can surprise to the upside. Solidifying of expectations that rates will rise next month could take the euro up to around $1.49, but a shock delay could see it slide to $1.40. With eurozone consumer price inflation running at 2.7% in May, well above the 2% ceiling considered compatible with the ECB’s mandate to ensure price stability, Mr Trichet is expected to say Thursday that “strong vigilance” on prices is warranted. Thus is a trigger phrase the central bank has used often in the past to flag rate increases.

No major data.



The dollar continued its sell-off against a basket of currencies yesterday and has continued into today’s early trading session. There is still increasing market chatter that the US Federal Reserve may opt after all for a third program of quantitative easing, which is putting pressure on the greenback. However, last nights com­ments by Federal Chairman  Ben Bernanke kept equities in check and he said accommodative policies are still required for the US economy, saying QE2 will end as scheduled and seem to dash hopes of QE3. Adding the recovery was recovering at a moderate pace and frustratingly low, and implying price stability is a more impor­tant Fed objective.

No major data.


• The Aussie and Kiwi dollars fell as lingering concern over Europe's debt crises and the US economy dampened de¬mand for growth-sensitive currencies.


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GBP/USD                        1.6369

GBP/EUR                        1.1150

EUR/USD                        1.4670

GBP/JPY                         130.77

GBP/AUD                        1.5368

GBP/NZD                         2.0056

GBP/ZAR                         11.0329

GBP/CHF                         1.3687

GBP/CAD                        1.6023

GBP/SGD                        2.0148

GBP/THB                         49.63

GBP/HKD                        12.7401

red-down; blue-up (snap shot)

These rates are for indication purposes only.

For more information or to get the latest spot rates contact:

John Paul Georgiou

Senior Foreign Exchange Broker

+44 (0) 20 7959 6917


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