Britain's loss of its prized AAA credit rating intensified the pressure on sterling today despite another rally for London's top flight shares index.
The currency weakened during overnight trading in Asia, leaving it at a 31-month low against the US dollar and at a 16-month low against the resurgent euro.
But much of the reaction to the Moody's downgrade had been priced into markets following a run of recent poor economic updates.
In contrast, the FTSE 100 Index was unmoved by the economic gloom as a large proportion of its earnings comes from overseas, triggering potential benefits from the weakness of the sterling.
The FTSE 100 Index opened around 40 points higher at 6375, while the pound was at 1.51 against the US dollar and 1.14 versus the euro during a steady start to European trading.
ETX Capital market strategist Ishaq Siddiqi said: "Most in the markets see the downgrade as a symbolic move that will likely heat up the political discussions over the UK's damp economic growth prospects and spur the coalition Government to launch bolder policies to drive growth."
Ministers and senior party figures have rallied round Chancellor George Osborne in the wake of the decision by agency Moody's, predicting it will have little impact on the Government's borrowing costs.
Tory backbenchers also upped calls for tax and spending cuts to kick-start growth, warning that next month's Budget is the "last chance saloon".
But Labour reiterated its calls for borrowing to be increased in the short term to fund a fiscal stimulus.
Explaining its move on Friday, Moody's pointed to "subdued" growth prospects in the UK and a "high and rising debt burden".
It now expects the "period of sluggish growth" to "extend into the second half of the decade".
Speaking on the BBC's Andrew Marr Show yesterday, Business Secretary Vince Cable dismissed the downgrade as "largely symbolic".
The Liberal Democrat said: "In terms of the real economy there is no reason why the downgrade should have any impact.
"If you remember last year the US was downgraded, the economy grew strongly relative to Europe... and France had a downgrade last year, its interest rates that it borrows long term in the markets are only a little above ours.
"These things do not necessarily affect the real economy but they reflect the fact that we are going through a very difficult time and we are trying to balance the need to get the deficit and the budget under control with the need to get back to economic growth."
He went on: "The rating agencies have a pretty bad record. They are a bit like tipsters. They get some things right and a lot of things not right.
"They are part of the background noise we have to take into account."
Mr Cable also flatly ruled out deeper spending cuts, suggesting that kind of policy was coming from "right-wing ideologues".
He said: "I think to embark on a slash and burn policy in response to this would be utterly foolish and counterproductive, and I am sure we will not be going there."
Mr Cable said the argument about whether the coalition should shift from plan A to plan B was "a bit juvenile".
He added: "What we are actually talking about is plan A+, or plan A++. Of course you have got to have the budget discipline but you have also got to have the Government acting in a way that supports growth."
Tory former chancellor Ken Clarke warned it would take years to regain the top credit rating and return to "sensible economic growth".
But he said the coalition should "stick to" its policy, adding: "I think the way in which we will recover confidence is making clear we're a strong firm Government, that the strategy we're on is the one that is eventually going to get things better and that the alternatives frankly are a bit odd."
Former Labour chancellor Alistair Darling said he had been "extremely doubtful" of the Government's strategy ever since 2010.
He told Sky News' Murnaghan programme: "I think that when they were elected they very unwisely staked their reputation on maintaining the AAA credit rating that they had, they compared us to Greece, they said they could eradicate the structural deficit by 2015.
"These were wildly optimistic claims and they were perhaps made because of inexperience and maybe a touch of recklessness.
"But the result is that they have sustained quite substantial political damage, but more importantly for the country the economic harm of yet another another blow to confidence.
"I think that is very, very important, they have been following the wrong economic strategy, but they are paying a very, very heavy price for it."Suggest a correction