The British pound tumbled to a six-week low against the US dollar today as risk aversion dominated the markets. Investors were being cautious after news of Moody’s downgrading five regions in Spain. This hammered euro, and most risk currencies fell in reaction to the move. Spanish bond yields also rose higher.
Sterling will likely just consolidate until the release of third quarter UK gross domestic product data due on Thursday.
Forecasts are that the UK economy experienced 0.6 percent growth. This would be good news considering there were consecutive quarters of contraction in the prior quarters.
GBPUSD lost 0.5 percent to reach its lowest level since September 7, bottoming at $1.5938.
Meanwhile the US trading session continued the risk off sentiment as Wall Street experiences losses due to weak US corporate earnings. Risk aversion caused flows to the safe haven dollar because it is the most liquid currency.
A speech by Bank of England Governor Mervyn King at the close of US markets on Tuesday said the BOE is ready to inject more QE if the UK economy falters. He described the economy as growing at a “slow and uncertain” pace. His negative outlook kept the pound weak.
Despite losing against the dollar, sterling actually gained against the euro. The single currency was broadly weaker today due to concerns over Spain. There is still ongoing uncertainty over when Spain will seek a bailout. Also weighing on euro was a downgrade by ratings agency Moody’s of five Spanish regions.
EURGBP fell 0.3 percent to a day low of 81.30 pence, off a 5-1/2 month high of 81.65 pence hit on Monday.