A month or so ago a failed gilt auction was received by the market as a cautionary tale of what could befall the US. Now after the S&P outlook downgrade, many feel the same way. Debt and deficit to GDP ratios are ballooning in the US, so clearly it could happen here. The market, fortunately, is miles ahead of the ratings agencies on this matter and that outlook is fully reflected in bond yields and currency prices. There would be short-term volatility on any such announcement, but the medium-term impact would be nil.
Same can be said for Sterling. What did the raters tell us that anyone with a passing knowledge of current events not already know in their gut? The slide in the pound was exacerbated by overbought conditions and a sell-first ask questions later mentality.
This is cable we’re talking about, after all. New traders have been lulled into the sense that it is just another currency given its relatively low volatility of late. Veterans know trading cable is a soul-crushing experience 9 days out of 10, and the greatest thing since sliced bread on the 10th day when you make enough to cover the disasters of the prior days…
