What a Blow! – Chancellor of the Exchequer Osborne Confirms U.K. Will Not Join Euro

…. and of course this pushes the pound lower immediately on the markets. This is the typeof market news where noone would know how to react and this is why most experienced forex traders advise to stay aside when such pieces of asteroids hit the news.

The British pound declined and gilts (the British bonds issued by government) advanced amidst speculation the government’s pledge to balance the budget by the end of its first term will damp the economic growth. Osborne said the government will cut the deficit to 20 billion pounds by 2015-2016 and will cut spending by 30 billion pounds annually.

Concern the U.K. would struggle to narrow the biggest budget deficit among the Group of Seven nations helped send the pound 9 percent lower against the dollar this year. Speculation the U.K. would lose its AAA rating helped the 10-year yield reach 4.3 percent on Feb. 22.Osborne, 39, the youngest chancellor since 1886, will outline plans to cut spending by the most in a generation to rein in the deficit, which amounts to 11.1 percent of gross domestic product. “We have set a brisk pace since taking office,” Osborne said while presenting the budget. “It has earned us credibility.”

Gilts outperformed both German and U.S. bonds following the May 6 election that ousted former Prime Minister Gordon Brown’s Labour Party after 13 years in power.

U.K. securities returned 2 percent, compared with a gain of 0.4 percent for German bonds and 0.8 percent for U.S. Treasuries, according to Bank of America Merrill Lynch Indexes.

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