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Pound slumps as UK at risk of a credit rating downgrade

currency-newsPound slumps as UK at risk of a credit rating downgrade
The pound was placed on the defensive again on Thursday, amid concerns the UK may be at risk of a credit rating downgrade.

Sterling is muted so far this morning, with GBP/EUR flat at €1.1388 and GBP/USD dipping to $1.1136. GBP/CAD is rangebound at C$1.5317, while GBP/AUD and GBP/NZD hold steady at AU$1.7427 and NZ$1.9758, respectively.

Looking ahead, could a robust US payrolls reading propel the US dollar higher this afternoon?

What’s been happening?

The pound retreated through yesterday’s trading session as the UK was threatened with a credit rating downgrade.

This came as Fitch joined S&P in cutting its outlook for the UK’s credit rating from ‘stable’ to negative’ in the wake of recent UK fiscal uncertainty.

The euro, meanwhile, was subdued on Thursday as EUR investors were left disappointed that the minutes from the European Central Bank’s (ECB) September meeting offered no insight into how aggressively the bank may hike rates in October.

At the same time, the US dollar strengthened yesterday as a bearish market mood continued to prevail, underpinning demand for the safe-haven currency.

However, these gains were tempered later in the session after a surprisingly large rise in US initial jobless claims at the end of September.

What’s coming up?

Centre stage today will be the publication of the latest US non farm payrolls release.
If September’s figures report the US economy continued to add jobs at a robust pace, then the US dollar could extend its gains.

On the other hand, a weaker-than-expected release could add to concerns the US labour market is cooling. Potentially weakening the US dollar if it leads investors to revise their Federal Reserve interest rate expectations.

For GBP investors the focus may be on a speech by Bank of England (BoE) policymaker Dave Ramsden as they look for more hints as to what policy response we can expect from the bank at its November policy meeting following the recent chaos in UK markets.

In the meantime, the euro could face some hurdles this morning following the release of Germany’s industrial production and retail sales figures as they both reported larger-than-expected contractions in August.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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