Ununoctium, or ‘Element 118’ as it is often termed, is the heaviest material known to man. Following rumours yesterday afternoon that Standard & Poor’s were going to downgrade the UK’s coveted AAA credit rating, Sterling sunk like a lead balloon encrusted with Ununoctium against all of its major currency peers.
The Pound to US Dollar exchange rate thrice struck a fresh 7-month low of 1.5416 yesterday afternoon as speculation that S&P were about to strip the UK of its prized triple-A credit rating dragged GBP/USD down by around -0.60 cents.
Standard & Poor’s declined to comment on the downgrade rumours, and it seems very unlikely that the credit rating agency will decide to slash the UK’s sovereign rating before March 20th when George Osborne will deliver his budget for 2013.
Nevertheless, traders reacted vigorously to the speculation and Sterling was subject to intense selling right across the board. The Pound reached a 19-day low against the Euro, a 16-month low against the Australian Dollar, and fell to within 9 pips of a fresh all-time low against the New Zealand Dollar.
In response to the downgrade rumour, GBP/EUR shrunk by -0.70 cents to 1.1516, GBP/CAD depreciated by -0.65 cents to 1.5620, GBP/AUD contracted by -0.90 cents to 1.4873, and GBP/NZD slid by -1.65 cents to 1.1863. Sterling’s trade-weighted index was also negatively impacted by the story, plummeting to a near 16-month low of 79.6.
The Pound’s heavy losses were compounded as jittery investors sought to cut their Sterling positions ahead of the Bank of England’s Minutes Report, which will be released later on this morning.
The BoE Minutes are unlikely to show many surprises following last Wednesday’s quarterly Inflation Report, in which Central Bank Governor Mervyn King suggested that more quantitative easing may be introduced in the future, despite the UK’s high rate of CPI inflation.
The Bank of England has set itself a 2.0% inflation target, but by its own standards the Consumer Price Index is not forecast to return to this level until at least 2016. In the meantime further monetary easing could be implemented to help forge an economic recovery in Britain.
If the Minutes Report shows that some MPC members voted for more QE last time out then it is entirely likely that Sterling could suffer more losses, especially at the hands of the advancing US Dollar.
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