The pound was on a much more stable level on Monday following a sudden fall over the weekend of the UK’s top AAA credit rating. Falling to a 16-month low against the euro and nearly a two-and-a-half year low against the US dollar, the sterling managed to recover in the later day of the trade.
Longer-term analysts anticipate a decrease in value of the pound persist having lost nearly 7 % of its value against the euro and dollar this year. On Friday, ratings agency Moody’s cut the credit rating of the UK.
The value of sterling has been slipping down for a couple of weeks after the deterioration of the UK economy and proposals that legislators are settling for a weaker value of the pound.
Monday’s early trade led to sterling dropping down to $1.5069 against the dollar and recovering at $1.514 respectively. As against the euro, the pound was in middle ground in its 16-month lows with the pound worth just 1.148 euro.
Statistics from the US Commodity Futures Trading Commission reveal that speculators still persist to sell in optimism that it will fall further and still purchase it back in the long run.
Moody’s demotion from AAA to AA1 ignited concerns that growth would remain relatively slow for the next few years with several agencies monitoring the government’s debt reduction programmes to face numerous difficulties.
Several agencies including Fitch and S&P were advised that their respective AAA ratings might be severely affected by the downgrade if the economy will not improve. In response to the pressing matters in the House of Commons, the Chancellor expressed his intentions that his government will continue with its austerity plans or face further risks of downgrades.
Still the choice remains for Britain to either leave its efforts to deal with the debt problem and risk make much harder decisions or intensify its efforts to overcome its existing debts.
Not so promising
Several prominent investors aired out concerns that they are no longer optimistic about the UK economy and also doubt the economy of Japan and the US.
If we look at the real economy there are basically no grounds why the downgrade should have any impact but it does give a clear indicative picture that the economy is indeed going through a very rough time.
With a frail pound although made exports much cheaper, it will most likely push the cost of imports and add pressure on inflation.
The downgrade efforts by Moody have ignited controversies whether financial markets should present confidence to rating agencies.
Several columnists and active financial bloggers posted their comments that people should not attach too much significance to the rating downgrade by Moody’s to strip down the AAA credit rating of the UK since the respective rating agency’s own credibility is still very much questionable.
Moody’s move ended in failure to dent the FTSE 100’s upward movement this year with the index resulting higher up to 0.3 % at 6355.37 points.
Standard Life’s head of equities expressed discontent the rating agency’s track record given the fact that the global financial crisis is at its peak. Moreover, he told BBC that the downgrade of US from AAA two years ago was barely even noticed back then.
The UK is still at high risk of sliding back into a downturn for a third time in five years. The economy grew fairly well in the third quarter last year after a boost from the Olympics only to shrink again 0.3 % in the three successive months of 2012 and is predicted to enter another slump in the first quarter this year.
Canada and Germany are the only two major economies to currently hold the top AAA rating despite the global economy being bombarded by the financial crisis of 2008 and the subsequent debt crisis that followed at present.