BLBG: Pound Weakens on Speculation U.K. May Lose AAA Credit Rating
The pound fell against the dollar and the yen after the Daily Telegraph said the U.K. may lose its AAA credit rating as Moody’s Investors Service is concerned about the nation’s rising debt burden.
The dollar dropped against the yen, heading for a third weekly loss, before a U.S. government report economists say will show orders for durable goods fell for the fifth time in six months, damping demand for the nation’s assets. The euro was poised for a weekly gain against the greenback on speculation German business confidence rebounded in April, adding to signs the worst of Europe’s economic slump may be over.
“It’s a veiled threat from Moody’s,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “Given that we are still above where we were 24 hours ago you would hardly be shocked if the pound headed back to the low 1.45s against the dollar.”
The pound fell to $1.4644 as of 1:19 p.m. in Tokyo from $1.4722 in New York yesterday. The British currency dropped to 142.38 yen from 144.21. The euro weakened to 127.74 yen from 128.77 yesterday, and traded at $1.3139 from $1.3144. The yen rose to as high as 97.14 per dollar, the strongest since March 30, from 97.96 yesterday.
Moody’s and Standard & Poor’s are reviewing the U.K.’s top sovereign credit ratings after the government said the nation’s debt will reach 1.4 trillion pounds ($2.1 trillion) over the next five years, the London-based Daily Telegraph reported. The pound slumped 1.2 percent on April 22 when Chancellor of the Exchequer Alistair Darling announced the biggest budget deficit on record.
‘Cause for Concern’
Moody’s analyst Arnaud Mares said Treasury projections for public-sector net borrowing are “a cause for concern,” while a Standard & Poor spokesman said it was looking at details of the budget and had no comment at this time, the newspaper said.
Standard & Poor’s cut Ireland’s credit rating to AA+ from AAA last month as the global financial turmoil fueled borrowing costs and swelled the budget deficit. The agency lowered the ratings of Spain, Portugal and Greece in January. Moody’s placed Ireland’s Aaa-rated government bonds on review for a possible downgrade on April 17, citing the “severe economic adjustment taking place” in the nation.
“The article is weighing on the pound, particularly against the euro,” analysts led by David Woo, London-based head of currency strategy at Barclays Capital, wrote in a research note today. “The credit ratings fear is an idiosyncratic risk for sterling.”
German Confidence
The euro reversed earlier losses against the dollar before a German report that may show business confidence climbed to 82.3 in April from a 26-year low of 82.1 in March, according to a Bloomberg New survey of economists. The Ifo institute will release the survey in Munich today.
“Hopes are emerging that the euro-zone recession is waning, given the recent data,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “This is positive for the euro.” Europe’s currency may strengthen to $1.3230 and 129.00 yen today, he said.
The 16-nation currency gained yesterday after Credit Suisse Group AG said it returned to profit and an index showed European services and factory industries shrank in April at the slowest pace in six months.
The Dollar Index headed for its first weekly decline since April 3 before the Commerce Department’s report on U.S. durable goods and on concern that Chrysler LLC and General Motors will file for bankruptcy.
Durable Goods
Orders for U.S. durable goods likely fell 1.5 percent in March, after a 3.4 percent increase in February, according to a Bloomberg News survey of economists. The report will be released at 8:30 a.m. in Washington today.
“Weak U.S. economic data combined with uncertainties about the fate of automakers may bode ill for the dollar,” said Kengo Suzuki, a currency strategist in Tokyo at Shinko Securities Co.
The U.S. Treasury is preparing a bankruptcy filing for Chrysler only as a matter of “due diligence,” Michigan Senator Debbie Stabenow said in an interview yesterday.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 85.356 today from 85.981 on April 17.
Japan’s currency headed for a second weekly advance versus Australia’s dollar on concern U.S. banks will unveil additional loan losses, spurring investors to pare holdings of higher- yielding assets.
‘Investors Shun Risk’
The yen rose against 15 of the 16 most-active currencies this week on speculation the U.S. government will direct banks judged short of capital to say how they will raise extra funds. U.S. lenders may need another $1 trillion in capital to cushion losses, KBW Inc. analysts said yesterday. The estimate is based on KBW’s own “stress test” of the strength of top U.S. lenders, wrote analysts led by Frederick Cannon, based in San Francisco.
“Any unexpected banking losses that come out of these tests would be worrying,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This would likely cause buying of the yen as investors shun risk.”
Australia’s dollar fell to 69.32 yen from 71.64 on April 17, and New Zealand’s dollar declined to 54.71 yen from 56.31 a week earlier. The U.S. government is scheduled to release the results of its so-called stress tests on May 4.
Treasury Secretary Timothy Geithner, European Central Bank President Jean-Claude Trichet and their G-7 colleagues gather in Washington two days after the International Monetary Fund cut its forecasts for each of their economies. As global stocks head for their first weekly decline in seven, the IMF predicts the global recession to be deeper and the recovery slower than it anticipated in January.
The G-7 will release a statement about 4:30 p.m. Washington time today and officials will speak to reporters afterwards. They will later meet counterparts from the Group of 20 nations.
