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AAA Q&A: why the UK's rating downgrade matters
Moody’s decision to strip the UK’s of its prized AAA credit rating late last Friday has huge political, economic and investment significance.
Why is the pound falling?
The big impact of the rating downgrade has been on the currency markets. The pound, or sterling, has tumbled to just over $1.51 to the dollar today and a fall to below $1.50 in the next few days looks likely. It has also slid against the euro to trade at 87.4p a euro.
Fears that the Bank of England will extend QE and ‘print’ more money has been one of the main factors in the pound falling 7% against the dollar since the start of the year. Last week it was revealed that Sir Mervyn King, governor of the Bank of England, had recently voted for more QE. More money in circulation means each pound is worth a bit less, hence the fall on currency markets.
Kathleen Brooks of Forex.com says the ratings downgrade makes it more likely that more QE will be sanctioned in a desperate bid to boost the flagging economy.
Next: what does it mean for UK government bonds?
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