Euro, British Pound Rally Continues Despite UK Outlook Downgrade by S&P

The British pound fell sharply this morning versus most of the majors, pushed GBP/USD down roughly 250 points toward 1.5550 and EUR/GBP up over 150 points toward 0.8850 on news that S&P lowered its outlook on UK debt to "negative" from "stable," but ultimately affirmed their long-term credit rating at AAA. Negative news for the currency also came from the UK's Office for National Statistics, which said that business investment contracted for the third straight quarter in Q1 at a rate of -5.5 percent, marking the steepest drop since Q1 2004 when investment plunged 21.38 percent. A breakdown of the report shows that manufacturers and non-manufacturers alike cut back on their investments, though construction firm reductions were less than in recent quarters at -9.0 percent. Ultimately, a lack of investment indicates a lack of confidence in future demand and the potential for further job cuts down the line. Positive news came in the way of a 0.9 percent rise in UK retail sales for the month of April, the second straight increase.

By the time the US trading session got going, though, a steady and steep plunge in the US dollar across the majors propelled both GBP/USD and EUR/USD above Wednesday's highs while EUR/GBP eased back down toward 0.8750. Now, daily charts of GBP/USD show that RSI is in overbought territory while EUR/USD is nearing that point, suggesting we could see reversals in the near-term, though another spike higher may not be out of the question.