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The S&P has downgraded the outlook on the U.K. economy

Written by A Forex View From Afar on Thursday, May 21, 2009

The U.K. financial markets came under a lot of stress this morning, after the S&P announced that it downgraded the U.K. economic outlook to negative from stable.

According to the S&P’s statement, the downgrade follows the poor state of the U.K.’s public finances. The government’s deficit is forecast to reach 100% of the GDP in the following year. To make matters worse, this year’s deficit will reach 175 billion pounds, nearly 12% of the economy. However, most analysts say that the actual number might be even bigger as the government tries to fight the aftermath of the credit crisis.

For now, the U.K. economy still retains its top-notch triple-A rating, but the S&P warns that the U.K’ high level of debt is incompatible with the current rating.

In recent weeks the rating agencies have started to act preemptively, something that has not happened over the last few years. Earlier this week Japan’s foreign-currency debt was downgraded by Moody’s, while the same rating agency put most of the Asia’s financial system on review for a possible downgrade. Furthermore, Moody’s is also preparing to downgrade 34 Spanish banks, including Santander, one of the largest banks in the world.

Most likely, more countries will see their debt rating downgraded in the coming period, as public deficits are set to increase substantially.

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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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