Moody’s rates decision and the increasing prospect of additional quantitative easing in the UK could weaken the Pound to less than 1.50 US Dollars.
The Pound Sterling Exchange Rate was in the region of 1.5139 against the US Dollar as of 10:22 am
Moody’s Investor Service might have slashed the UK’s credit rating but Chancellor of the Exchequer George Osborne is refusing to be cowed by the situation.
Although Osborne had previously pledged to protect the UK’s coveted top rating no matter what, he is determined that his approach to dealing with the economic crisis is the right one despite this disappointing decision.
In an interview published in The Sun newspaper Osborne argued that the government should ‘stick to its course’ and not alter policy out of fear, despite the opposition demanding a switch of focus from deficit reduction to growth.
He added: ‘Britain has a debt problem, built up over many years, and we have got to deal with it. Far from weakening our resolve to deliver our economic recovery plan, this rating decision redoubles it.’
Several other prominent political figures, including Business Secretary Vince Cable, have similarly downplayed Moody’s decision, arguing that it was hardly unexpected and shouldn’t have a real impact on economic growth.
It has also been highlighted that there are now very few nations embroiled in the global economic crisis who still have top credit ratings intact.
However, the decision has certainly taken its toll on the Pound.
Since the decision was announced the British currency has fallen to a 2 ½ year low against the US Dollar and a 16-month low against the Euro, and further Sterling declines can be expected.
Already this year the Euro has gained on the Pound by 7.5 per cent whist the Pound has lost almost 7 per cent against the ‘Greenback’ – but the Bank of England seems unconcerned by the turn the currency is taking.
In fact, the BoE’s decision to revise its inflation and growth forecasts has been responsible for much of the Sterling’s losses, whilst one official’s statement that a weaker Pound would be beneficial to UK exports also triggered declines.
As an industry expert commented: ‘This downgrade may fuel more speculation that quantitative easing will be re-started later this year. This is Pound negative for the medium term and we could see sub- $1.50 in the near term’.
Meanwhile, Morgan Stanley financial services was quoted as saying: ‘By moving the goal post of its 2 per cent inflation target from two to three years, the Bank has reduced real rate expectations, markedly pushing the Pound lower. Now rising inflation and Pound weakness will pare living standards back down. We expect Sterling to fall further and Friday’s rating downgrade was a marginal even in dictating the future path of the currency’.
Current GBP Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading at 1.1440
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading at 1.5139
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trading at 1.4710
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trading at 1.8052
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is currently trading at 1.5494
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is currently trading at 142.0720
These exchange rates were correct as of 10:22 am
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