Equities Macro Forex

British pound recovers after Moody’s Friday British credit downgrade

The British pound has gained ground in early Monday trading as it recovers from the credit downgrade from ratings agency Moody’s on Friday. Sterling sank around half a cent against the US dollar on Friday following the news.

However, the British pound has recovered some ground Monday and is back around the $1.353 mark.

Moody’s downgraded the UK’s credit rating from Aa1 to Aa2 Friday, following Prime Minister Theresa May’s EU speech in Florence. In it she detailed plans for a longer withdrawal period and an agreement to pay billions of pounds to the EU as part of the divorce settlement.

UK PM May’s speech was widely considered to have failed to alleviate any real concerns over Brexit and its economic impact.

The global ratings agency stated the two main reasons for the downgrade were:

  • The UK's public finances outlook had weakened significantly and that the country’s debt burden was set to rise.
  • The UK’s withdrawal from the EU would likely result in “the erosion of the UK's medium-term economic strength” as fresh policy setting challenges would arise.

It added that the failure of the Conservative party to secure a single majority in the general election earlier this year, “further obscures the future direction of economic policy.”

However, while the British pound fell in later trading on Friday on disappointment on Mays speech and the Moody’s downgrade, analysts commented Moody’s had been behind the curve with its action. A view Downing Street agreed with, calling its move and comments “outdated.”.

Indeed, Fitch Ratings and S&P both downgraded their credit rating of the UK in 2016 after it was clear the UK would leave the EU. Fitch cut its UK credit rating from AA+ to AA while S&P lowered its ratings by 2 points from AAA to AA.

And, as the British pound recovers Monday, it suggests investors agree with the view that the action from Moody’s isn’t telling them anything new about the UK’s uncertain future.

Avatar Ilona-Billington
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