Good Morning. The pound fell against most currencies yesterday after a credit rating agency warned the UK faced a "formidable" challenge to cut its budget deficit. The comments brought the Pound to Euro rate down from it's recent 18 month highs. Rates this morning are as follows:
Pound falls against Euro
Credit Ratings agency Fitch said the UK must cut it's deficit more quickly than set out by the former Labour government in April. It also pointed out that most other countries had pledged to cut their fiscal deficits by more than the UK has.
"With other European sovereigns strengthening their fiscal consolidation plans and market concerns about sovereign risk in advanced countries increasing, both the size of the UK deficit currently projected for 2011 and the failure to reduce it to 3% of GDP within five years are striking," the report said.
Fitch did not revise the UK's credit rating but its comments suggest that it would consider doing so if the pace of deficit reduction was not increased. The news made the pound less attractive to investors, and exchange rates fell around a point against the Euro and US Dollar as a result.
Summary
Investors remain nervous about the potential impact of huge spending cuts on UK economic growth, while worries about euro zone debt problems left them wary of buying riskier currencies, including sterling.
"The market is for the moment giving the new coalition the benefit of the doubt," said Lee Hardman, currency economist at BTMU. "But if the global recovery starts to lose momentum people will be more worried about the growth impact."
So watch later this month when the budget is announced, as if the cuts are more severe than analysts expect, then the pound could come under further pressure.
Those that need to buy Euros should take into account the big rise in rates in the last few weeks, from €1.13 to €1.21 - consider the risk of rates coming back down, and take a look at the different contract types we have that can protect you from rates moving the wrong way.
Today's data
UK Trade Balance is released today, which is is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. This is likely to affect the value of Sterling if the figures are not as expected.
In New Zealand we have an interest rate decision. We expect rates to rise to 2.75% which may strengthen the Kiwi making it more expensive to purchase. Later in the day Japan releases it’s latest GDP data.
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