Downgrade Rumors Weigh On Sterling

Includes: FXB, FXC, UDN, UUP
by: FXstreet

The dollar trades mixed versus major competitors, but within its recent ranges, with the main exception of the pound, as the British currency weakened to fresh multi-month lows amid speculations and rumors S&P could downgrade the UK's "AAA" rating.

Even though risk appetite received a boost on positive European data and stocks trade broadly higher, the loonie remains under pressure, and is among the worst performers across the board on soft data. The euro is little changed, despite firm German data and today's well-received Spanish debt auction.

"Although today's trading is somewhat listless, European events could provide some direction later this week, including eurozone PMI and German IFO confidence data, and Italian elections at the weekend," said Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.

GBP/USD Falls To 7-Month Low, 1.5400 Key Support

The British pound extended losses versus the dollar on Tuesday, as there is growing speculation that the United Kingdom will lose its triple-A rating by Standard and Poor's later today, even though the agency has refused to comment on the matter.

GBP/USD fell to its lowest level in 7 months to 1.5414, and according to short-term charts, there is still scope for further losses, as indicators point south below their midlines and the price remains capped by the 1.5500 mark. The bigger picture is also bearish, and a break below the 1.5415/00 area would expose the 1.5320 area ahead of 1.5267 (May 2012 low).

On the other hand, the cross needs to regain 1.5500 to improve immediate outlook, although bearish pressure should persist while below 1.5600.

"Maintaining the bearish momentum, the GBP/USD broke below former support around 1.5440, accelerating towards 1.5400," says analyst Valeria Bednarik. "While further losses should remain limited today, a daily close below 1.5400 would confirm further slides, with the 1.5260 area now at sight."

The possibility of a downgrade in the UK's rating will likely keep the pound under pressure while it remains vulnerable to any weak economic data, including the UK jobs report and the BoE minutes release scheduled for Wednesday. "It is widely expected that the release will echo comments made by King during his Q&A following the release of the Quarterly Inflation Report, where the governor indicated that the central bank is willing to look though CPI to support growth," said the team.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.