Moody's Whacks the Pound

The pound sterling fell against the euro on Tuesday after Moody's said it many contemplate lowering the credit rating of up to 14 British banks, according to Bloomberg.

Notably, Royal Bank of Scotland and Lloyds Banking Group are two groups under review by Moody's.

The U.K.'s Treasury also released a report showing that the budget deficit for the month of April was worse than projected.

To exacerbate the problem, the British government's austerity program does not seem to be benefiting the British economy. According to the Guardian, the British economy continues to shrink and some economists are warning of potential stagflation.

The British government plans to eliminate the majority of its budget deficit by April 2015 as it implements an austerity program.

Still, the pound sterling could be oversold. Traders looking to play a bounce in the British pound may wish to consider CurrencyShares British Pound Sterling Trust ETF (NYSE: FXB). FXB may do well if the pound rallies.

Investors in the U.S. ought to watch the British economy with interest, as the U.K. has many ties to the American economy.