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Sterling falls against euro after UK outlook downgrade

Sterling falls against euro after UK outlook downgrade

Sterling hit its lowest level in more than a week against the euro on Friday after Standard & Poor’s lowered its outlook on UK government debt to negative. This downgrade puts S&P’s outlook on the UK in line with other ratings agencies Fitch and Moody’s. S&P said it sees a one-in-three chance that Britain will lose its prized triple-A credit rating. Some analysts said the euro’s short-term gains were likely to be capped; however, as a credit rating downgrade was not imminent even though S&P’s move puts more focus on the UK’s poor growth outlook.

The dollar has come under pressure in recent sessions both against the pound and the euro after the Federal Reserve increased its asset purchase scheme on Wednesday, with investors also fretting over looming U.S. budget problems. However, the US jobless claim spike seen following hurricane Sandy has started to subdue as initial jobless claims fell to a nine week low of 343,000 compared to the consensus of 369,000 adding to evidence the jobs market is improving. The slow but steady improvement in employment conditions has helped support retail sales which helped support economic activity in the third quarter when business investment sagged.

On the FX markets, GBP/USD eased back from its recent six week high as investors took some profits after the US Fed announced a new round of monetary stimulus, slipping to a low of $1.6083.

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