April 22, 2013 / 8:07 AM / 5 years ago

Sterling steadies after UK downgrade, seen vulnerable

LONDON (Reuters) - Sterling dipped against the dollar on Monday and looked vulnerable after a second ratings agency downgraded Britain, with investors also wary of the risk of weak growth data later in the week.

Fitch Ratings stripped the country of its triple-A credit rating on Friday, citing a weaker economic and fiscal outlook, and following in the footsteps of fellow agency Moody‘s.

Analysts said although the downgrade came as no great surprise to investors, given recent the fragile outlook for the British economy, it added to reasons to sell the pound.

The initial estimate of gross domestic product data on Thursday could put further pressure on sterling, with many market players concerned it will show the economy contracted in the first quarter of 2013.

Sterling fell 0.1 percent on the day to $1.5213 (9993 pence), retreating further from the April high of $1.5412 (1.0123 pounds).

The euro was little changed on the day at 85.65 pence.

“The downgrade does put extra emphasis onto the GDP data later this week. If we get a contraction we believe there’s an increasing risk of further quantitative easing,” said Ian Stannard, head of European FX strategy at Morgan Stanley.

“It’s a slow build-up of negative news which does not seem to stop and increasingly leaves sterling in a vulnerable position.”

The Reuters’ consensus forecast is for the British economy to expand by 0.1 percent, although forecasts range from 0.3 percent growth to 0.2 percent contraction.

A lacklustre number will likely spur bets that the Bank of England’s Monetary Policy Committee (MPC) will opt for more monetary easing in coming months to help boost the economy.

“For our part, we only think it will be a matter of time before the MPC eases again and this Thursday’s Q1 GDP figure could be of importance in this respect with the consensus going for a tiny 0.1 percent increase,” Steve Barrow, head of G10 currency research at Standard Bank said in a note.

Editing by Keiron Henderson

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