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FX markets and in particular £ crosses had an air of shock to them yesterday as the full horror of The Budget sank in. Sterling did move away from Wednesday’s lows against the USD and EUR but has being kept in check through Asian trade.

The Telegraph is running a story we featured in our video blog yesterday that the big 3 ratings agencies (Moody’s, S&P and Fitch) may downgrade the credit worthiness of UK sovereign debt from its treasured AAA status. This could happen if the government’s predictions of an explosion in the percentage of debt to GDP come true. Any downgrade of the credit rating would see gilts sell off hard as the main investors such as pension funds are sometime limited to only investing in AAA status bonds. The price of gilts fell sharply for the second time yesterday as yields rose in order to entice buyers.

Euro was however the star of the show as it outperformed most currencies yesterday. After a spate of depressing figures from EU manufacturing and service industries their respective PMIs were released well above expectation but they are still well below the key dividing line of 50; anything below signals contraction, above expansion.

It is a solid data day today kicked off by German IFO business climate. The UK’s business confidence reading from the CBI was better than expected yesterday and the Germans’ is expected at 82.3 against a previous reading of 82.1. UK retail sales are due at 09.30 with a more modest decline than last month’s expected. The big number ‘post Budget’ is this morning’s GDP readout. Everyone has acknowledged that Q1 of this year was going to be a dog and any downwards deviation from the expected 1.5% fall could see sterling move into the weekend with a bloody nose.

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Have a great weekend. 

Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080. Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

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