Pound weak after BoE comments, Ireland downgraded

25th August 2010
Good morning. The pound was pushed further down yesterday after a BoE members comments that growth forecasts for the UK were overly optimistic. There have also been some downgrading of EU countries credit ratings, which has weakened the Euro. Rates as at 08:30am are as follows:


Pound weaker on BoE comments

In an interview with the Times, Martin Weale, the newest member of the BoE's Monetary Policy Committee, said that Britain faces the risk of sliding into recession. He also said that the central bank's growth forecast for this year and next may be too optimistic. Analysts said sterling would be vulnerable in the future to dovish comments similar to Weale's. The comments caused the pound to fall through trading yesterday.

"Weale's comments were not too surprising, but it helped produce some weakness in sterling given overall dollar strength," said Steve Barrow, head of G10 currency research at Standard Bank. "At the moment, the doves have the upper hand."

As the US Dollar is gaining strength due to it's safe haven status, riskier currencies such as Sterling are venerable. Any negative comments like this easily push Sterling lower, making any currency purchase more expensive.

Credit Rating Downgrades

The Irish Republic has had its credit rating downgraded by a leading ratings agency, Standard and Poor's (S&P).

S&P fears that the growing cost of propping up the country's banks will further weaken the government's finances. The agency (one of the world's three top ratings firms) warned that the rating could be cut again if the costs of the bail-out rise or the economic recovery becomes more sluggish.

A lower rating can make it more expensive for the government to borrow money on the markets - vital for governments needing to finance large deficits. The news has weakened the Euro slightly, but the weaker pound is still in charge, and rates have not risen much against the Euro.

This is probably due to the fact Ireland is not one of the EU's biggest economies, and markets were already well aware of problems with their sovereign debt.

Today's Data

There are various measures of Business Confidence today for Germany, which may affect GBP/EUR rates. Those needing to buy or sell US Dollars should also contact us to discuss the release of Home Sales and durable goods orders.

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