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U.K. Deficit Continues To Expand

Written by A Forex View From Afar on Wednesday, April 22, 2009

The Chancellor of the Exchequer, Alistair Darling, forecast a 3.5% contraction in 2009, making it the biggest deficit since World War II. The current projection, of 3.5% is twice as big as the November estimates when the global economy entered into a strong contraction phase.

Currently, the Treasury projects that the country will run a 146 billion pound deficit this year, the biggest on record. This will put upside pressure on the gilt’s yields, meaning that investors will demand more money to fund the U.K. deficit. However, the Bank of England has already acted to counter this, by having direct (and public) interventions in the gilt markets, the U.K’s government instrument to borrow from the financial markets.

For now, the U.K. economy outlook is lying to the downside. Earlier in the day, a report showed that the labor market hit the lowest level in a decade, as the unemployment rate hit a 12-year high. Currently, the OECD estimates that the U.K. economy will contract 4% in 2009, slightly less than the U.S. and the Euro-area

During the Chancellor’s press conference, the pound plunged against the other major currencies. The pound lost 180 pips in less than 30 mins against the dollar, and 100 pips against the euro in a similar period.

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There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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