Forex News – Sterling falls after Moody’s threat of downgrade

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The British Pound fell to its weakest level against the Euro since early May after leading credit ratings agency Moody’s threatened to downgrade the U.K.’s top-notch ranking.

Moody’s analyst Sarah Carlson said that if growth remains weak and the UK government fails to meet its debt-cutting target Moody’s will cut the triple A rating

“We believe that slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with a Aaa rating,” Carlson said in an interview with Market News International.

The government aims to virtually eliminate a budget deficit of around 10 percent of GDP over the next four years, but lacklustre growth has caused some people to doubt whether it will meet this target.

The weak UK real economy will persuade the Bank of England leaves rates unchanged at the record low of 0.5% on Thursday, and probably for the near future.

In contrast, the Euro is expected to remain strong ahead of the European Central Bank meeting, which is also tomorrow, at which the ECB is expected to give a hawkish signal for a rate hike as early as July.

EURGBP hit a one-month high of 0.8974 gaining 46 pips from 0.8929 level just before the news release.

Against the dollar, the Pound lost around 83 pips to hit a session low of 1.6354 from 1.6437.