Pound Pummeled
As any Forex trader knows, t
he British Pound has taken a pounding on world currency markets. The bad news just keeps on coming with no end in sight. On Monday the Pound took another drubbing as the news came out that Moody’s Investor Service had downgraded the credit rating of the venerable Barclay’s Bank in the UK.
Troubled UK Banking Sector
Forex traders and investors quickly shed the Pound as UK banking fears wiped out last week’s gains. Last week the Pound posted its biggest percentage gains against the US dollar in 20 years. Dustin Reid of RBS Global Banking and Markets said that concerns about the UK banking industry may prompt the “Bank of England to cut interest rates by more than expected.”
BOE to Cut Rates
Most Forex traders expect the bank to cut rates to a historic low of 1.0% on Thursday down from 1.5%. The Pound fell to $1.4203% after reaching a low of $1.4053, below last weeks high of $1.4527. The Euro rose 2.6% against the Pound trading at 90.34 pence. This reversed last weeks trend where the Pound had its second best week in 10 years while the Euro suffered record losses.
The Pound’s decline started on Monday after Moody’s cut Barclay’s credit rating causing shares of Barclays to fall 11%. The news caused Forex traders to dump the Pound in favor of higher performing currencies. David Powell, Bank of America currency strategist had this to say, “The outlook for sterling remains one of weakness. The data was not any worse than expected but the overall tone was still negative for the currency.”
UK Rates Lower Than Euro Zone
At present UK rates are 50 basis points lower than in the Euro Zone and the expected rate drop could push the Pound even lower due to a growing rate differential. Forex traders will be watching the moves made by the ECB and the BOE closely and will also be watching the US employment report. Forex trading has become somewhat of a fine art lately and Forex traders must absorb massive amounts of global data. Once again its going to be a very busy week!
