The Brexit induced risk aversion faded by mid-week as risk assets started to pare losses. After touching new lows on Monday, even the British pound pulled back strongly against the US dollar from its 31-year lows, but analysts were not quite convinced if the recovery was going to last. Ratings agencies were quick to downgrade the UK's credit ratings, including S&P Global Ratings and Fitch Ratings stripping UK of its coveted AAA and AA+ investment grade status. By Thursday, S&P also cut the Eurozone's credit rating from AA+ to AA but raised its outlook as 'stable' compared to the UK's outlook which is 'negative.' The Bank of England's Governor Mark Carney gave a speech on Thursday evening where he said that the central bank will assess the impact of Brexit risks on the UK economy and will give a full assessment by the August policy meeting. He said that the central bank could look at rate cuts and potential expansion monetary policy if need be. His comments sent the sterling lower on the day, but supported the equity markets. Even gold prices edged higher on the prospects of the BoE restarting its QE program.
On the economic front, data last week saw US first quarter GDP being revised higher for the third time. The data from the US commerce department showed that the US economy now grew at a pace of 1.10%, compared the first estimates of 0.50% and the second estimates of 0.80%. Over the week, other data from the US included the personal income and personal spending, both of which showed a robust pickup in consumer spending and wages. Inflation data released over the week was tame, but did not show any immediate risks to the downside. The US dollar continued to be supported by safe haven flows and prospects of the Q2 GDP posting a recovery.