Pound Exchange Rate Endures A Tough Week – Moody’s Downgrade Possible

The pound exchange rate survived it latest scuffle this week, the cause of this week’s turmoil being the publishing of a report from Moody’s credit rating agency demonstrating the extent of the pressure that the UK economy currently finds itself under.

The credit ratings agency highlighted the threat to the UK’s economy which could be caused by a flawed Brexit negotiation, the current political uncertainty, and the current financial uncertainty.

Moody highlighted that the UK could also risk losing their current Aa1- credit rating if they were unable to maintain some level of integration with EU; in particular their access to the single market.

Moody’s vice president Kathrin Muehlbronner also highlighted the increased political uncertainty following Theresa May’s failure to secure a majority Government. She did, however, provide some hope by stating that a free trade arrangement remains in the interests of both the UK and the EU.

Pound Exchange Rate Weakened Following the Moody’s Report

As mentioned the Pound endure another challenging week before seeing some gains towards the end of the week. In the immediate hours after the report was published GBP/EUR weakened significantly touching a week low of 1.1184 before recovering in the final two trading days. Closing at 1.1423. Many are also speculating that Mario Draghi could calm his stance on the ECB’s monetary policy so GBP/EUR could see further gain next week.

Regardless of the Moody’s report the Pound Exchange Rate fared well against the USD and actually closed above 1.31. Gaining strongly throughout the trading week from an opening rate of 1.2891.

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Moody’s Realigns UK’s Predicted Growth

Moodys also delivered a sobering overview of the UK’s growth prospects. The credit ratings agency expects the UK’s economic growth to weaken to 1.5% this year and to just 1% in 2018. The figures make for uncomfortable reading considering that the UK’s economy had performed better than any of the European nations, growing at 1.8% in 2016.

The report elaborated further stating:

Over the medium term, growth prospects would likely be materially weaker if the UK were to fail to reach a new trade arrangement with the EU that allows it good access to the single market.