UK’s credit rating downgraded by second agency
The Pound weakened for a second day against the Euro, approaching a one-month low, after Fitch Ratings cut the U.K.’s credit ranking by one step.
Sterling dropped to a two-week low against the Dollar. Fitch reduced the U.K.’s grade to AA+ from AAA on April 19, citing a weaker economic and fiscal outlook as it became the second company to cut the country’s rating within two months. It restored the outlook to stable even as it predicted that U.K. debt will peak above 100 percent of gross domestic product. This capped a tough week after the IMF downgraded its UK economic forecasts further and warned that Britain needs a plan B for jobs and growth.
The UK has been flirting with a triple-dip recession since the 0.3% contraction in Q4 2012. Industrial production in February and the March PMI services index were both stronger than expected and should result in a positive reading. Even if a third recession is avoided, GDP growth will remain below pre-crisis levels.
As well as this, the Euro was steady against the Dollar on Monday, as sentiment on the single currency remained cautious ahead of Euro zone data on manufacturing and services sector activity on Tuesday.
The Eurozone was to release a report on consumer confidence later Monday, while the U.S. was to release private sector data on existing home sales.
In numbers, GBP/EUR saw a muted response to the downgrade, perhaps demonstrating a current floor in Sterling’s value versus the Euro, falling from 1.1750 but consolidating under the 1.1700 mark. EUR/USD rose to $1.3128 on Friday following comments from an ECB member who said Eurozone interest rates are appropriate given current conditions, before easing back to this morning’s $1.3040 level. GBP/USD hit a high of high of $1.5367 before sliding 1.5 cents following the Fitch downgrade.