Forex - GBP/USD pares gains as risk aversion weighs

Investing.com – The pound pared gains against the U.S. dollar on Monday, pulling back from a one-week high as risk aversion sharpened after Standard & Poor’s downgraded the U.S. debt rating, fuelling fears over the outlook for the world’s largest economy.

GBP/USD pulled back from 1.6475, the pair’s highest since August 1, to hit 1.6416 during early European trade, still up 0.13% on the day.

Cable was likely to find support at 1.6227, last Friday’s low and short-term resistance at 1.6495, the high of June 1.

The pound was higher earlier after the European Central Bank said late Sunday that it “will actively implement” its bond-buying program, indicating that it will likely buy Spanish and Italian government bonds in an attempt to ease investors concerns over the region’s ongoing debt crisis.

But concerns over the U.S. economic outlook were exacerbated after ratings agency Standard and Poor's downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA after markets closed Friday.

The ratings agency kept the U.S. rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and “America’s governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed.”

Leaders from the Group of Seven leading economies said Sunday that they were ready to take every action necessary to stabilize financial markets.

"We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth," the G-7 said in a statement.

Elsewhere, the pound was down against the euro, with EUR/GBP gaining 0.33% to hit 0.8742.

Later in the day, the U.K. was to release industry data on retail sales and home prices.