Moody's put the UK on negative watch as a credit downgrade looms

Tom Tong14/Feb/2012Currency Updates

GBP

The Confederation of British Industry announced yesterday that they felt the UK economy would escape recession and avoid anymore Quantative Easing (QE) this year. The Bank of England has not however closed the door on the idea of more QE this year as a quaterly inflation report is due out and is set to be cautionary on growth. These developments led to the first gain in the dollar for four days. This gain has been welcome since the sterling had been falling off from the 2 month high reached last week. US credit rating agency Moody’s warned that there is a 40% chance the UK could lose its Triple A rating within in the next 18 months, this is due to Murphy’s assigning a ‘negative’ outlook to the UK’s economy. This weakened the sterling during the Asian session.

EUR

A bill proposing a second round of Greek austerity measures was passed yesterday. This now shifts the focus onto the meeting of Euro-region finance ministers on Wednesday. This should allow Greece the €130Bn bailout fund from the EU and IMF. However whether the Greeks’ austerity measures are upheld is to be seen. Athens has been criticised for failing to implement pledges from the first round of austerity measures. This coupled with the violent uprising in the Greek capital gives no guarantee. The common currency rallied across the board with this renewed positivity, until Moody’s stuck their nose in at the end of the US session.

USD

Barrack Obama requested $3.8 Trillion for his 2013 fiscal year budget with the key focus being on spending stimulus and tax increases for the wealthiest Americans. The Dollar saw many of the higher yielding currencies gain against it as investors moved away from the safe haven to feed their risk appetite this side of the pond. However following Moody’s shuddering announcement investors turned back to the safe haven before the meeting of European Finance ministers tomorrow.

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Written by Tom Tong

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