Possible credit rating downgrade weakens the pound.

Sterling slipped back further against the dollar yesterday after the Fitch credit ratings agency put the UK’s AAA rating on “negative outlook”. Fitch has joined Moody’s in warning that Britain’s triple-A rating could be downgraded.

The revised outlook has seen Britain’s status change to negative from stable on the basis the country does not have the resources to recover from further adverse economic shocks. On the back of the latest data release the GBP/USD cross dropped back towards $1.5630 before recovering back into the 1.57’s by the late afternoon.

Fitch warned on Wednesday that they could downgrade the UK rating within the next couple of years if the government does not control public debt. The warning comes just a week before Chancellor George Osborne delivers this year’s budget.

"The Fitch warning is weighing," said Adrian Schmidt, FX strategist at Lloyds TSB. "Sterling has broadly outperformed other currencies against the dollar in the past few days, so there is a chance that cable could play catch up and ease towards $1.55."

In the last week we have seen the dollar has rise against most major currencies after the Federal Reserve appeared less dovish than expected at their regular monetary policy meeting. Coupled with this week’s poor UK data rates have fallen from the highs we saw a few weeks ago.

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