The underlying UK economic and debt vulnerability has been illustrated by the Standard & Poor's warning that the AAA credit rating is at risk of a downgrade. This rating is extremely important given the need for government bond sales of GBP200bn this year. The degree of global risk appetite will also remain very important and the UK currency will be in a much better position to sustain a robust tone if overall risk appetite remains stronger. The S&P move is not a knockout blow, but it still indicates that rallies above the 1.5760 region against the dollar should be seen as selling opportunities.

A weaker dollar was crucial for the UK currency on Wednesday and this allowed Sterling to push to 2009 highs near 1.58 while Sterling was also strong against the Euro and tested 2009 highs beyond 0.8750. Significantly, Sterling was able to push above its 200-day moving average against the US currency which provided additional technical support and it held firm in early Europe on Thursday.

The UK retail sales data was stronger than expected with a 0.9% monthly increase and an upward revision for March.

The impact was totally overshadowed by the Standard & Poor's announcement that the UK credit rating was being put on negative watch due to the debt fears. There was also another very weak reading for the latest government borrowing data. The AAA rating was maintained for now which will help cushion the impact and Fitch stated that there were no immediate plans for a rating change. The move is still very important, especially as it will also tend to undermine wider risk appetite.