Sterling drops as markets offer verdict on the debt downgrade of the UK economy

The British pound is recovering after dropping against the world's leading currencies as markets reacted to a downgrade of the U.K.'s cherished triple-A credit rating.

During early trading Monday, sterling dropped to $1.5069 against the dollar — its lowest level since July 2010 — before bouncing back to $1.5144. Against the euro, the pound hovered around 18-month lows with one euro worth 0.8745 pound.

The pound was in focus in the wake of last Friday's decision by Moody's to downgrade the U.K.'s credit rating by one notch from the top AAA to AA1. The agency says sluggish growth and rising debt are weakening the British economy's outlook.

Two other major rating agencies — Fitch and Standard & Poor's — have also warned that they may downgrade the U.K. as well.