GBP/USD back over $1.24 post fitch downgrade

GBP/USD slipped 0.3% lower to US$1.24 in early trade and has retained those losses across the morning session.

The Pound slipped as investors weighed up the impact of a ratings cut by Fitch late on Friday. The ratings agency cited the coronavirus impact and uncertainty over Brexit as the motive for cutting the UK’s rating from AA to AA-. Fitch predicted that UK GDP would drop 4% this year owing to the pandemic related downturn. The rating agency was also concerned about the UK’s fiscal loosening stance amid its big spending plans to shore up the economy.

What next?

Whilst the UK remains firmly on lock down, conflicting comments are leaving traders unsure of the next step, keeping the pound steady. On the one hand, reports suggest that the UK could be on lock down for three months, with social distancing implemented until October. Should this be the case the hit to the UK economy could greater than initially expected.

On the other hand, comments by Neil Ferguson, a Professor at Imperial College advising the UK government said that the UK epidemic is slowing and that antibody tests are the next step. His comments have raised hopes that the UK could be back to work sooner.

Trump extends social distancing

The US Dollar has picked up at the start of the week, recouping some of last week’s steep losses on the back of an increase risk aversion. Trump extended the US social distancing guidance until the end of April after having previously said that the US would be open for business after Easter. His U-urn comes following dire projections from his advisers.

The broad expectation is that this should be over with by mid-May. There is definitely a feeling that the markets have seen the worst. That said, volatility will remain for the time being as infection rates still have the ability to scare.

Levels to watch

GBP/USD jumped 7% across the previous week, picking up from 35-year lows of US$1.1410 before closing the week at $1.2457.

GBP/USD is consolidating those gains. On the 4 hour chart GBP/USD trades above its 50 and 100 sma whilst retaining the bullish trend.

Immediate support can be seen at $1.2313 (today’s low) prior to $1.2260 (100 sma) and $1.2750 (low 27th March).

Immediate resistance can be seen at $1.2466 (today’s high) prior to $1.2485 (high 27th March) and $1.2595 (200 sma).