Pound Into the Ground As Darling Threatens to Raise Taxes

Last updated 4/22/2009 9:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

UK Chancellor of Exchequer Alistair Darling announced that UK government will borrow 269 billion pounds more than previously forecast as this year’s UK fiscal deficit will total more than 12% of the GDP - the highest figure in the G10 universe. Mr. Darling also proposed that tax on income earners of 100,000 pounds or more be raised to 50%.

The latest news was not received well by the currency market with cable dropping more than 150 points in less than an hour. The toxic combination of higher than anticipated budget deficits and larger tax hikes has suddenly turned the UK economy into a decidedly less attractive destination to investors over the past several hours.

As we noted earlier, the enthusiasm fueled by hopes of a rebound in the UK economy is quickly disappearing from the market as traders begin to accept the fact that the economic contraction is likely to be protracted irrespective of monetary and fiscal stimulus attempted by the policymakers. For now 1.5000 clearly represents the top of the recent rally and given today’s gloomy fiscal data 1.4000 could now come into play as bears target the bottom of the range.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.