Sterling has been the focus of currency trading this morning, following the unveiling of the budget by Chancellor of the Exchequer Darling. The proposed UK deficits would total £703B during the five fiscal years through April 2014 compared with £434B forecasted back in November.
For the 2009 year, the £175B deficit would equate to 12.4% of GDP, which would be the biggest in the G20 nations. The pound exhibited weakness after Darling announced a 50% tax bracket for incomes greater than £150K, effective April 2010.
The UK is also raising tobacco duties by 2%, effective immediately.
The Department of Debt management (DMO) stated that the UK Government would now issue £220B in Gilts during 2009 period, above £200B the market had expected. GBP/USD fell 250 pips. GBP/EUR drifting back toward the 1.1100 neighborhood from highs last week around 1.1400.
Due to this we have seen broad sterling weakness which has the potential to be prolonged. Clients with near-term requirements should concider covering their buying needs to avoid dissapointment if the rates continue to decline.
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Wed, Apr 22, 2009
General