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Is British Pound About to Get a Beating?

Thursday, 8 Sep 2011 | 2:55 PM ET

With all the action on the Continent, the British pound has been out of the spotlight. It's time for a look — and you might not like it.

It's been easy to ignore the British pound, what with all the goings on in Switzerland and the gloomy pronouncements from the euro zone. But you might want to take a look.

The Speculative Sentiment Index published by dailyfx.com suggests the British pound is primed for a fall. Almost 59% of traders are long the British pound against the dollar — a decline from Wednesday but still an indication that expectations for the currency may be significantly higher than they should be.

Meanwhile, analysts at Danske Bank are arguing that British government debt merits a four-notch downgrade. That would mean a decline from AAA to A+.

UK Heading For Downgrade: Analyst
The UK's credit rating is four notches too high at present, and should be downgraded to A , John Hydeskov, senior analyst at Danskebank, told CNBC. The analyst predicted that the UK would be formally downgraded in 2012, as a result of falling real growth and rising national debt.

“Real growth could in our view be substantially lower; the GDP deflator could be somewhat lower and the deficit might be harder to reduce than projected. Rather than peaking in 2013-14 and easing slightly towards 69 percent of GDP in 2015-16, we find that the debt burden in our most likely scenario will rise throughout our forecast horizon and reach 84 percent of GDP in five years’ time,” Danske Chief Analyst John M. Hydeskov wrote in a research note.

You can watch Hydeskov's discussion with CNBC in this video clip.

You know what happened to markets after the U.S. debt rating was cut one notch.

Even if Danske is only one-fourth right, it's time to fasten your seatbelt.

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