S&P confirm UK's AAA credit rating

Tom Tong04/Oct/2011Currency Updates

GBP

Ratings agency Standard & Poor has confirmed the UK’s AAA credit rating. S&P said that despite sluggish growth, the UK’s “diversified” economy and “flexible” fiscal and monetary policy would enable it to weather a slowdown.

Sentiment towards the pound was fragile on expectations that more monetary easing may be needed to revive the economy. Some investors speculated that the Bank of England may announce more quantitative easing measures as early as this week. Sterling fell against the dollar yesterday, brushing off a higher-than-expected reading of U K manufacturing as the pound sold off in line with stock markets and other higher-risk currencies due to mounting worries about a Greek debt default. The UK manufacturing PMI rose to 51.1 in September, wrong-footing forecasts for a fall to 48.6, which would have suggested an on-going contraction in the sector. This data dimmed some speculation the UK central bank may restart its asset-buying programme, but did little to offset the view the economy is struggling to cope with the effects of fiscal austerity and the impact of the Euro zone debt crisis.

The BoE will make a policy announcement on Thursday. Analysts said speculation about more QE will continue almost to the last minute given the services sector PMI due on Wednesday.

EUR

It is looking as likely as ever that a Greek default is imminent as the next bailout instalment has been delayed by finance ministers. They cancelled their meeting which was due to take place 15th October on the back of the news that Greece admitted that they would not meet this year’s deficit cutting target. This sent stocks spiralling to a 15 month low and the Euro to a decade low against the Yen and sharply lower against other majors as the flight to safety continues. Though some ministers insist that they will not allow Greece to default, this is not ensuing confidence and investors are continuing to find safer investments to place their assets.

Data out for the Eurozone today includes PPI which is expected to post a figure down on last month at -0.2%.

USD

Over a summer of growing and escalating fears that the U.S. was going to put further global financial pressure on a double dip rescission with America being downgrade to a AA+ rating two months ago, the world’s reserve currency shows no sign no slowing. The dollar has continued to punch its weight in the wake of a struggling European economy, while the Suisse’s intervention has pushed investors to put their confidence in the Greenback.

Despite this sudden growth in confidence regarding the dollar and a series of volatile sessions over the past week’s trading, the greenback faces a serious test this week following Ben Bernanke’s press conference today at 15:00 and US Non-farm employment figures due out Friday will determine the actual growth and direction of the U.S economy. The expectations within the market suggest that America has seen further recovery in the labour sector and that this will continue throughout October.

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Written by Tom Tong

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