Sterling stumbled yesterday after a damning credit rating report weakened confidence in the UK economy

The pound dropped for the first time in six days against the greenback, though its losses were minimized with dollar selling remaining the overall market trend.

  • Initially sterling fell sharply, losing over a cent, after a ratings agency said highly-indebted Britain was the major economy most at risk of losing its triple-A rating.
  • The pound retreated from a three-month high against the dollar after Fitch told Reuters Britain would have a tougher time than the United States in sustaining its fiscal deficit without impacting interest rates or the currency.
  • However, sterling was able to trim its losses as strong data on UK house prices and retail sales released overnight suggested the economy was showing positive signs of emerging from recession.
  • Furthermore, analysts felt that the pound had fallen in a knee-jerk reaction to Fitch’s statement and that traders pared back their sterling short positions as they realised there was nothing new in the news.
  • In trading this morning, the pair is steady, currently hovering around 1.6750, as investors await important UK employment figures and the BoE’s quarterly inflation report.