Pound dollar rates fall again.

Good afternoon,

It has once again been a difficult day for sterling as markets reacted to news the UK has lost its AAA credit rating. On Saturday the credit rating agency Moody's lowered the UK credit score to AA1 which prompted yet another drop in exchange rates and at its lowest point cable fell to $1.5088. It now means we have seen 7.2% drop in rates since January and at this moment in time is difficult to see where a recovery will come from.

Over the last couple of weeks I have mentioned a few times that the UK is under increasing pressure. Like many, I did not expect the downgrade to happen as quickly as it has, I was expecting to see the GDP figures released for quarter 1 this year before any action was taken. 

So where does this leave cable now?

Moody's has been the first credit rating agency to act and they may not be the last, there are two other major credit rating agencies (S&P and Fitch) and if they follow suit we could potentially see further losses. Later this week we will see a revised figure for Q4 GDP,depending on the result you may see a slight swing either way. 

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I think the next couple of weeks could be key for Sterling's future, at the start of March the Bank of England will meet to discuss interest rates and quantitative easing, following the minutes released last week there is an increased chance policymakers could look to add to the £375 billion they have already pumped into the UK economy to try and stimulate growth. If this happens we could see the pound devalue which in turn would see sterling loss more ground against the greenback. 

We are also getting ever closer to the finding out if the UK is back in recession, although figures will not be released until April, speculation will grow (especially if the BoE look at more stimulus) and could have severe consequences for the UK as a whole.

So to summarise, the next couple of months will see the uncertainty and volatility continue, I think there is more scope for rates to fall than increase and based on what we have seen recently I would not be surprised if rates dropped back into the $1.40's in the next couple of weeks.

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