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Forex - GBP/USD erases gains as EU debt, US downgrade weigh

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Forexpros - The pound erased gains against the U.S. dollar on Monday, pulling back from a one-week high as an historic downgrade of the U.S. debt rating and fears over sovereign debt contagion in the euro zone weighed on risk appetite.

GBP/USD pulled back from 1.6475, the pair's highest since August 1, to hit 1.6320 during U.S. morning trade, falling 0.45% on the day.

Cable was likely to find support at 1.6227, last Friday's low and short-term resistance at 1.6475, the daily high.

The pound was higher earlier after the ECB said in a statement late Sunday that it "will actively implement" its bond-buying program, indicating that it would buy Spanish and Italian government bonds.

However, the news failed to ease fears over the risk that the euro zone's debt crisis could spill over to the region's third and fourth largest economies.

U.K. Chancellor of the Exchequer George Osborne said in an interview with the Daily Telegraph that euro zone nations "must act swiftly" and "do whatever is necessary to ensure financial stability" in the region.

He added that the U.K. government's austerity plan showed that it was possible to "earn credibility and get ahead of the markets through decisive action."

Meanwhile, concerns over the U.S. economic outlook were exacerbated after ratings agency Standard and Poor's downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA after markets closed Friday.

The ratings agency kept the U.S. rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and "America's governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed."

Elsewhere, the pound was higher against the euro, with EUR/GBP shedding 0.52% to hit 0.8666.

Leaders from the Group of Seven leading economies said Sunday that they were ready to take every action necessary to stabilize financial markets.

"We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth," the G-7 said in a statement.

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