S and P downgrades Spain's credit rating as last months UK GDP figures are revised upwards

Tom Tong11/Oct/2012Currency Updates

GBP

The pound gained for the third day in a row yesterday against the Euro after Standard & Poor’s cut sovereign-debt rating. The reason for this was mounting economic and political risks as the Spanish government considers a second bailout as their credit rating was lowered two levels from BBB+ to BBB-.

Meanwhile Sterling recovered from a three day decline against the dollar as a result of optimism that the UK economy would return to growth last quarter. This was boosted by demand in British assets. The UK economy expanded at its fastest pace in 5 years in the third quarter according to the national institute of economic and social reform yesterday. GDP rose 0.8 percent compared to the dollar with a revised 0.1 percent through August.

EUR

The euro fell against the dollar on Wednesday after Standard & Poor’s downgraded Spain’s credit rating, citing concern about the nation’s capacity to deal with the current financial crisis.

The single currency fell around 0.1% in late trading in the US as S&P Spain’s rating cut to just one notch above junk fuelled nerves about Europe’s debt crisis and spurred safe haven demand. It slipped after Standard & Poor’s cut Spain’s sovereign credit rating to BBB-minus, with a negative outlook reflecting significant risks including a lack of clear direction in euro zone policies.

S&P’s two-notch downgrade from BBB-plus follows an earlier cut by Moody’s Investors Service, which could sink Spain’s credit rating down to junk territory when it announces the result of its review expected in coming weeks. The head of the International Monetary Fundon Thursday called for urgent action to tackle Europe’s debt problems and an approaching fiscal crisis in the U.S., warning that the struggling world economy is already falling short of even pessimistic expectations.

IMF chief Christine Lagarde, speaking to reporters as the IMF and World Bank began their annual meetings in Tokyo, praised recent steps taken by the European Central Bank and European governments, but said “more needs to happen, and faster.”

USD

The dollar slipped against rivals on Thursday, but remained above the 80-point mark after a downgrade of Spanish government debt underscored concerns about Europe’s fiscal health.

The dollar index , which measures the greenback against a basket of six rivals, edged down to 80.009, from 80.058 in late trading the previous session when it moved over the 80-mark for the first time in a month.

Data out of the US today, Initial jobless claims and the US trade balance for August.

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Written by Tom Tong

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