Pound Dollar Exchange Rate Could Dip As Standard & Poor?s Place UK?s AAA Credit Rating On Watch

Published: Friday, 14 December 2012 09:00 BST - Written by Tim Boyer

STORY LINK Pound Dollar Exchange Rate Could Dip As Standard & Poor?s Place UK?s AAA Credit Rating On Watch

The evidence is mounting that economic activity in China and its hinterland is on the up. Last night’s Asian session brought the release of another set of encouraging data from the world’s second largest economy, this time in the form of this month’s HSBC Flash PMI survey for the manufacturing sector. The closely-watched gauge of the health of this key part of China’s economy revealed that activity levels currently stand at their highest for 14 months. The figure was better than analysts had been expecting, and in light of the other encouraging Chinese data releases this month, suggests that the ‘workshop of the world’ may have the momentum to lead the global economy out of its current slump.

The news from the Far East has elicited good levels of appetite for risk during the Asian equities session, with Hong Kong’s benchmark Hang Seng index registering gains of almost 0.75% by the closing stages of the trading day. The ‘risk on’ trading environment has led to continued pressure on the safe-have US Dollar which has ensured that the GBP USD exchange rate remains lodged in the mid-1.61s where it spent most of yesterday.

However, ‘Cable’ may come under some selling pressure later today following last night’s news that Standard & Poor’s has placed the UK’s AAA credit rating on a ‘Negative Outlook’ due to concerns over the British coalition government’s continued failure to reduce the nation’s overall level of indebtedness. S&P are the third and final of the three major global credit ratings agencies to take the action, following in the footsteps of Fitch and Moody’s, who both placed the UK on a ‘credit watch’ earlier this year. This fact may be the Pound’s saving grace today – S&P’s action has already been almost totally priced-in to levels for Sterling pairs.

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