The largest single factor driving down the UK currency recently has been the size of the budget deficit, which threatens the integrity of the UK’s sovereign credit rating. With national debt rising above £900 billion, Sterling has come under serious selling pressure over the last two years, losing 30% and 17% against the US dollar and the Euro respectively. If nothing else, the emergency budget and its proposed measures certainly seem to have boosted the strength of Sterling.
There are those who fear that harsh cuts could stunt economic growth before the recovery is fully realised and throw the UK back into recession.Equally, there are those who believe that the threat comes from a burgeoning deficit that could push the UK into a Greek-style crisis. Whichever way you believe Sterling will swing, you can take a position with forex trading on the EUR/GBP and GBP/USD. As ever, the devil will be in the detail and if the budget proposals are perceived to be especially harsh, we may see share price slides exacerbated.
While we may need hindsight to assess the true long-term economic impact of the emergency budget measures, the UK’s equity markets could see some volatility as investors decide whether Mr Osborne’s proposals and actions will cripple economic growth or help the recovery. Share dealing in these circumstances will be intriguing, with immediate reactions like banking shares trading lower on the release of details of Mr Osborne’s planned tax on the sector being unpredictable. This very volatility makes the market an ideal environment for financial spread betting or cfd trading. Markets will already be factoring in some downside for growth, with the newly-formed Office for Budget Responsibility has already downgraded Alistair Darling’s growth predictions from 3.25% and 3.5% to 2.6% and 2.8% for the next two years.
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