The British Pound has come under pressure against its US counterpart as the trading week kicks off after the UK's sovereign debt was downgraded by ratings agency Fitch over the weekend.
The UK was downgraded one notch from AA to AA- due to the significant increase in fiscal spending announced by the Government in order fight the effects and the economic turmoil caused by the coronavirus outbreak, as well as the uncertainty surrounding the post-Brexit trade talks with the EU that are currently underway.
"This is the first downgrade of a sovereign on the back of the coronavirus and the increase in fiscal spending. We have had several reviews of Eurozone countries including France and Spain and neither has been downgraded on the back of the increase in fiscal stimulus," says Jens Peter Sorensen, Chief Analyst at Danske Bank.
The pound has had a stellar run over the past week, jumping almost 10 percent against the US dollar after reaching a low of $1.15 caused by the meltdown in financial markets.
Some analysts believe the worst is over for the British currency and in the medium turn there should be more of a recovery which will also be helped by overall US dollar weakness caused by such matters as a soaring unemployment rate.
Job market data from the US showed a record surge in unemployment claims to a new all time record. More than 3 million Americans applied for unemployment benefits, which was well above the 1.7 million that markets were expecting and equals around 2 percent of the working population.
"We continue to see upside potential for Sterling. Despite its relative liquidity, the pound was one of the G10 currencies most harshly punished by the dollar funding squeeze, possibly due to the UK’s large financial sector. As this issue seems to have been resolved, we expect Sterling to regain its lost ground by mid-year," says Gaétan Peroux, Strategist at UBS.
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