Fitch smashes chances of further Pound recoveries after removing UK from AAA club

FXstreet.com (San Francisco) - Fitch Rating has decided to downgrade the United Kingdom from the perfect AAA credit rating to AA+ as their rating watch conclusions "primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt."

However, Fitch's outlook for the UK is now "stable" after placing the kingdom in negative on March 14. "The Stable Outlook indicates a less than 50% chance of a change in the UK sovereign ratings over the next two years."

The agency now forecasts that the general government gross debt "will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%," according to the Fitch official paper.

As reaction, the GBP/USD traded lower on the minutes after the Fitch announcement with the pair falling 30 pips from 1.5255 to reach intra-day low at 1.5225. GBP/USD, which was already under selling pressure, broke below the 1.5245 support area (20-day SMA) and stretched to a low of 1.5225 before pausing the decline. In the day, the Cable is trading 0.30% lower after peaking to 1.5370 in the European session but declining in the American morning.