“The pound fell to its weakest level in almost 16 months against the euro after Moody’s Investors Service cut the U.K.’s AAA credit rating, citing weakness in the nation’s growth outlook.
U.K. government bonds pared an earlier decline. Moody’s lowered Britain’s rating by one level to Aa1 from Aaa on Feb. 22. Sterling, which has tumbled 6.8 percent against the dollar this year, dropped to the lowest since July 2010 before a government report this week that analysts said will show Britain’s economy shrank last quarter.
“Although the timing of the downgrade was a surprise, overall the market has been anticipating a ratings change,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “In recent weeks we have seen sterling’s safe-haven status erode. After the initial knee-jerk reaction there is the potential for a rebound.”
The pound slid 0.7 percent to 87.59 pence per euro as of 11:27 a.m. London time after depreciating to 87.75 pence, the weakest since Oct. 31, 2011. The pound was little changed at $1.5149 after declining to $1.5073, the lowest since July 2010.
Sterling has slumped 6 percent this year, the second-worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. Only the yen has fallen more, losing 6.7 percent. The dollar strengthened 1.7 percent.
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Three-month implied volatility on the pound versus the euro climbed as high as 9.4 percent, the most since May. 18. Volatility on the pound versus the dollar climbed to 9.23 percent, the highest since June. 19….”
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