Pound Pressured by Deficit Concerns
On Friday the yen fell and the pound rose on news that Moody’s said the ratings of both the US and the UK were not under threat prompting a rise in risk sentiment among traders and investors. The pound fell against the dollar for the fourth straight week due to concerns about rising deficits in the UK. Chancellor of the Exchequer Alistair Darling told Parliament that the UK budget deficit will be about 611 billion pounds ($990 billion USD) in the next four years, more than previously predicted. Ian Stannard of BNP Paribas SA said, “The pound failed to gain any real support against the dollar on the back of the comments coming from Moody’s. This underlines the overall weakness of sterling.” Participants in a summit of asset managers said that the pound was their ‘least favorite’ currency and some predicted the pound may be used for carry trades in 2010.
BOE to Leave Rates Low
Recovery from the recession in the UK has been slower than its other European counterparts and has pressured the pound in currency markets. Darling also said he wants to tax bank bonuses at 50% a move not popular with bankers. Last week Darling also said the UK economy will shrink by 4.75% this year. Last week Bank of England policy makers said they would leave rates at 0.5% and will maintain their 200 billion pound asset purchase program in an attempt to lower borrowing costs and prevent deflation. The pound traded at $1.6244 against the dollar and 89.96 pence against the euro.
Euro Flat vs. Dollar
The euro remained flat against the dollar and some currency analysts said investors were reluctant to buy euros due to the Greek rating downgrade and the negative outlook for Spain. Earlier in the week Moody’s Investor Service said it would not downgrade the ratings of the 17 countries with AAA ratings but that some of the countries will be hard pressed to manage their debt burdens.
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