Rumors of an S&P downgrade of UK sovereign debt sent EUR/GBP soaring in Asian session trade as the cross hit a high of 8700 before finally easing. Last December the agency affirmed UK’s AAA status but revised the outlook to negative. The ratings agency refused to confirm speculation that the UK rating may be lowered further, but the currency markets reacted nevertheless pushing pound lower to 1.5418.

Most of the flows however were centered in EUR/GBP which gained nearly 30 points during what is typically a very quiet session. The EUR/USD also gained strongly breaking out above the 1.3400 level and hitting a high of 1.3434 before retracing a bit. In a complete turn of events the euro is now acting a “safe haven” part of the cross as traders become increasingly concerned about UK economic conditions with the country dipping into recessionary territory for the third time since the credit crunch of 2008.

Today the markets will get a glimpse of the UK jobless data and well the BOE minutes and both reports should provide some visibility regarding conditions on the ground. The claimant count is expected to come in at -5.3K versus -12.1K the period prior. However, an increase in UK joblessness could spur even further selling in sterling and push EUR/GBP through the 8700 as the day proceeds.