The pound suffered a rocky day in global foreign exchange markets today as European traders responded to the decision of the credit rating agency Moody’s late last week to strip the UK of its AAA credit rating.
At one point sterling fell to its lowest level against the US dollar since 2010, $1.5073, before recovering at the end of trade. Against the euro, the pound slipped at one stage to €1.1356, a 16-month low. On Friday night, Moody’s downgraded the UK one notch from AAA to Aa1, citing the country’s rising debt profile and weak growth outlook.
The pound has fallen by around 7 per cent against the dollar and 7.5 per cent against the euro this year as markets have digested weak economic data, and responded to signals that the Bank of England is considering more monetary stimulus.
Data released by the US Commodity Futures Trading Commission showed that speculators are still betting that the pound will fall further.
“Sterling is wounded and the UK’s reputation as a safe haven has been tarnished,” said Chris Towner of the foreign currency exchange broker HiFX. “The predators in the market will now be looking at sterling to see whether there is any more opportunity for weakness”.
But not all City analysts were impressed by the Moody’s downgrade. Tim Morgan of the interbroker dealer Tullett Prebon said: “One should not attach too much importance to the [Moody’s] decision … For a start, credit rating agencies’ own credibility hasn’t recovered – perhaps it never will – from their role in the subprime fiasco. More to the point, this [downgrade] doesn’t tell us anything we didn’t already know.”