Sterling fell against the Dollar most of the European session, exacerbated by Moody’s threat to downgrade Spain as well as poor U.K. data on housing and money supply.
Risk aversion increased as investors began selling riskier currencies like the Pound for the traditionally “safer” Dollar.
However, losses will be limited as Sterling will be kept supported due to the weaker Dollar, until a U.S. debt plan is agreed upon. If the U.S. ratings will be downgraded, then this will further keep Cable buoyed.
This is fortunate for the British currency since the U.K. economy is still struggling to recover and most of the fundamentals give evidence of sluggishness. In fact, this morning, data on housing does not improve the picture of the slow housing market. Mortgage approvals and mortgage lending figures from the BoE this morning show low volume.
Additionally, the U.K. released money supply data which showed that M4 supply growth was slow.
All the data today fuels speculation that the BoE will not likely hike rates anytime before 2012.
Since the Asian session open, GBPUSD fell over 110 pips to a European session low of 1.6260.