Pound Slides to Lowest Since 2010 After Downgrade

The pound fell to its lowest level since July 2010 against the dollar after Moody’s Investors Service cut the U.K.’s AAA credit rating, sapping demand for the nation’s currency.

Sterling dropped to the weakest in almost 16 months against the euro as Moody’s said its decision was based on weakness in the nation’s growth outlook and challenges to the government’s plan to cut the deficit. U.K. government bonds gained after an aide of Democratic Party candidate Pier Luigi Bersani said there’s increasing risk another Italian election will be needed, spurring demand for safer assets.

“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 fell 0.3 percent to $1.5119 as of 5:20 p.m. London time after declining to $1.5073, the lowest level since July 13, 2010. The U.K. currency dropped 0.2 percent to 87.16 pence per euro after depreciating as much as 1.3 percent to 88.15 pence, the weakest since Oct. 28, 2011.

The U.K. currency has weakened 5.8 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. Only the yen has fallen more, losing 5.9 percent. The pound has slumped 7 percent in 2013 against the dollar and 6.9 percent against the euro.

(Source: Bloomberg)