(UK) The ratings agency S&P maintained the UK sovereign rating at AAA with a stable outlook. The stable outlook reflects the expectation that the government will put in place most of its fiscal consolidation program, and the possibility of a recovery in H2 with further strengthening thereafter. In addition, the agency expects that the Bank of England’s monetary policy (viewed as highly accommodative) will help maintain the government’s borrowing costs in check.
How to interpret this headline?
Perception is everything in Forex and perception is good to GBP. With S&P reaffirming UK sovereign rating of AAA, which has been a concern since the release of UK Prelim GDP for Q2 2102 at -0.7% last week, market is likely to re-evaluate their positions on Sterling and I believe we should see the pair GBPUSD move towards the 1.60 level in the next few months.
Considering the bazooka that ECB is going to use this week, the optimism, and the potential economic growth generated by the Olympics in Q3, UK’s economy should recover from recession, thus adding strong fundamental reasons to go LONG on the Sterling. I would be looking to BUY on dips should the market retest the support levels, especially against the US Dollar or the Japanese Yen (…and Especially with the JPY as BOJ is likely to keep a tight lid on JPY strength now that the latest CPI data out last week showed that Japanese economy has falling back into deflation territory, and if BOJ wants to reach that 1.0% inflation target, they will have to announce more easing soon…)
As far as EURGBP is concerned, I would expect GBP to trade softer against Euro as recent fear drive flows helped GBP to appreciate sharply against Euro. If the fear factors were to be contained in Europe, EURGBP could be heading back above the 0.8000 in the next few weeks.
UK Sovereign Rating Reaffirmed By S&P With A Stable Outlook
July 30, 2012 by Leave a Comment