S&P downgrades Japan’s debt rating to AA-

Tom Tong27/Jan/2011Currency Updates

GBP

The pound received a lift on Wednesday after minutes from the Bank of England’s policy meeting this month showed policymakers had considered an interest rate hike, although worries about the economy checked gains. The minutes showed Bank Monetary Policy Committee member Martin Weale unexpectedly joined Andrew Sentance in voting for a quarter-point rate rise, prompting a possibility of a 0.25% rise to 0.75% in the coming months.

USD

The dollar was generally weaker on Wednesday as the Federal Reserve maintained its accommodative monetary policy and downplayed the threat of inflation.

In a unanimous decision, the Fed kept its benchmark interest rate near zero and maintained its $600 billion asset purchase plan. “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November,” the Fed’s statement read.

Meanwhile, an encouraging report on the housing market released showed a 17.5% increase in total new home sales to 319,000 but failed to boost the dollar as the majority came from a 71.9% increase in the west.

EUR

The resurgent euro continued to pressure other currencies on Wednesday on perceptions that interest rates will rise sooner in the Eurozone than in the US. The belief that the Fed will stick to a much easier policy than the European Central Bank, which is growing worried about inflation, has helped the euro to extend its recovery after a two-month drubbing on worries over Eurozone debt.

Spanish and Portuguese sovereign debt concerns were in the rear-view mirror as traders look ahead to the latest US GDP figures on Friday.

JPY

Standard & Poor’s downgraded Japan’s sovereign debt rating to AA- from AA early Thursday, saying that it expects the country’s fiscal deficits to remain high in the next few years. The news is another blow to Japan’s already troubled fiscal position as it has piled up government debts that now total nearly 200% of annual gross domestic product.

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Written by Tom Tong

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