Pound weak on debt fears

Good Morning. Sterling reversed gains against the US Dollar and stayed range bound against the Euro, after ratings firm Fitch said Britain was among the most vulnerable of triple A sovereigns. Rates @ 08:30am are as follows:

  • GBP/EUR 1.1380
  • GBP/USD 1.5665
  • GBP/AUD 1.7882
  • GBP/NZD 2.2574
  • GBP/CAD 1.6737
  • GBP/CHF 1.6706
  • GBP/ZAR 12.033
  • GBP/JPY 140.41
  • GBP/NOK 9.2482
  • EUR/USD 1.3758

UK Debt
Many news outlets have been focusing on the debt problems that some EU countries such as Greece has, that’s keeping the Euro weak. The UK should be seen in the same category of countries as Greece and Spain, who are facing severe debt problems, a leading economist has said. Ex-IMF chief economist Simon Johnson, also described the G7 group of leading economies as “fundamentally useless”.

One of the major concerns about a country having large budget deficits is that it cannot spend sufficiently to boost its economy. Although the UK did officially come out of recession in the fourth quarter of 2009 – ending six consecutive quarters of economic decline – the growth was just 0.1%, much less than expected.

“It is right that borrowing has been allowed to rise so that the government has been able to protect the economy from the global downturn,” a Treasury spokesman said. “But, supporting the economy through to recovery goes hand-in-hand with steps to rebuild fiscal strength once recovery is firmly established. “That is why the government has set out a clear plan to halve the deficit over the next four years, while protecting the frontline services that people depend on.”

Now, I can remember the Chancellor Alistair Darling saying it would be halved, but I don’t remember any clear plan on how they are going to do this. Markets are also worried about the lack of a plan, and are very nervous that the economy is unstable, and this may cause the pound to fall over the coming months.

Last week the Euro hit a seven-month low against the dollar, as traders worried that Greece’s government debt problems could spread to other European countries such as Spain and Portugal. Stock markets have seen big falls too, as investors studied the countries’ spiralling deficits and questioned their commitment and ability to bring them down.

The financial markets are taking a long hard look at the fiscal accounts of all these countries and they don’t like what they see,” he said. “Now Greece is an an extreme example – there I think you can see that it’s going to get very messy very quickly – but unfortunately the budget situation in these other countries is also weak.

“And I have to add the UK to this list. Unless you can persuade the markets that you’re really going to bring the budget under control within the foreseeable future and you’re going to have some credible actions – and you’re going to have to do some persuading – you’re going to have big trouble.”

The pressure on the EU to act will be brought into sharp focus this week when the new President of the European Council Herman von Rompuy chairs a special economic summit in Brussels at which the public finances of Greece, Spain and Portugal will be discussed.

Why haven’t rates climbed if the Euro is weak? It’s because of these fears over UK debt. IF it wasn’t for the EU problems, Sterling to Euro exchange rates would be much worse. If you’re worried about the market falling, click the links below to open an account, and have a free consultation on the options available to you.

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