httpvh://www.youtube.com/watch?v=2CSH3B1Cg50

Sterling is a currency that the market will not allow to rest in the sun for too long it seems as it is has been hit this morning by possible downgrades for the UK’s banks. This includes Barclay’s and HSBC as well as the smaller banks and building societies and the rationale behind this warning shot from the ratings agency is that some of these institutions are still heavily reliant on support from the government or ‘systemic support’ as Moody’s puts it and that these tax payer funded bailouts are unlikely to occur again in the future.

Given the UK’s reliance on the banking sector this has fed directly through to the pound and at the time of writing GBP is 0.25% lower against the euro while remaining level against the US dollar.

The euro is remaining more resilient than some had expected since the weekend’s squeeze on the single currency. We always expected strong interest at the 1.40 level as it will represent a level on which traders have based stop losses and options barriers. We did break into the 1.39s briefly yesterday before pulling higher but with an absence of further negative comment surrounding the Eurozone then a rebound is likely. We did see Fitch revise its outlook on the sovereign debt of Belgium to negative but there was no change to the  credit rating of AA+. This is mainly as a result of the political situation in the country which has left the Belgian people without a government for longer than Iraq.

Greece also acknowledged yesterday that it is going to have to speed up the schedule of privatisations and assets sales in order to quell some of the market’s fears over the level of debt and its ability to repay. This is after the yield on Greek debt on a 10 year time frame hit 17% yesterday with other peripheral yields also ticking higher on contagion fears. European equities also lost their bid yesterday with most down around 1.5% on the day. Markets have opened in the green however this morning as bargain hunters swoop in after yesterday’s falls.

German IFO and UK public finance figures are due this morning. The IFO business survey (09.00) is expected to show a further kick-down in the fortunes of German business which could cause traders to fade this euro rally while UK public sector net borrowing (09.30) is expected to fall to 4.4bn in April in a traditionally strong month for tax receipts.

Latest exchange rates at time of writing