GBP/USD
The Pound has been obviously knocked on the immediate reaction on the Moody's cutting the credit ratings of the troubled Euro zone countries. To be perfectly honest, I do not think the rating agencies tend to have much of an impact on the markets. They do not really reveal to us anything we do not know. To my mind, the Sterling is batting between safe-haven and risk-on-trade, but I suppose anything ahead 1.60 is seen as a sell. Current level tends to track the EUR/USD pair, so as far as the Moody's negative outlook is concerned, the Pound showed a sharp reaction bouncing to the 1.57 level, however, a lot of people know that there are tough times ahead.
Generally the Sterling is seen in a 1.40-1.70 range, having dropped significantly from 2.11 and down in a couple of years from the base 2.40. I believe that if the Euro goes higher, it does not mean that the Pound cannot augment with it, pushing the cable up through 1.60 to 1.70, but that is the upside limit. I think it is more likely that the pair reaches 1.40 or 1.60 level for the foreseeable future, for the next couple of quarters. If there is any rise in safe-haven demand, I guess the Sterling could rise above the 1.60 level.
EUR/USD
It is no secret that the Middle East sovereign accounts like the Euro and are the major buyers in this pair and a lot of spec traders see EUR/USD lower. The common currency has to weaken because export growth is dependent on the currency capacities to a certain degree. We were expecting the Euro to reach the 1.10 level by the end of this year, however, provided we keep getting the Middle East accounts, and Far East Central banks continue buying, they could actually slow it up and the Euro might be held above 1.20, although fundamentally it should be much lower. Moreover, the options market is pricing in a significant skew to the downside, right where the interest is.