Pounds Meets Abyss on Fiscal Concerns, U.S. Discount Rate

The pound touched the lowest level in 2010 versus the greenback and declined versus most of the 16 main traded currencies as economic stimulus are likely to be maintained in the U.K., considering the slow pace of the nation’s economic growth and raising gap in the public accounts.

The U.K. currency reached the lowest price in 9 months versus the U.S. dollar after the Federal Reserve rose its discount rate for the first time in three years, suggesting that the economic recovery in the U.S. is allowing central bankers to lift stimulus and furthermore promote interest rate hikes at some point this year, causing an exodus of capital from Britain to the other side of the Atlantic Ocean. Retail sales frustrated forecasts today, and after government officials statements last week suggesting that inflation will remain below the Bank of England‘s target for 2010, the pound outlook was hurt even more among the most traded currencies.

The fiscal crisis unfolding in Europe is starting to raise eyebrows in the U.K., added to the fact that the economy recovery so expected for the beginning of 2010 didn’t take off as analysts suggested, which is certainly pushing the sterling down and is likely to make it touch new record lows, specially versus the greenback and higher-yielding currencies.

GBP/USD traded at 1.5424 as of 17:55 GMT from a previous intraday rate of 1.5614. GBP/CHF traded at 1.6661 from 1.6829.

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