Not the Pound’s Darling (3)
Posted on March 24, 2010 by Yohay
Filed Under Forex News | 3 Comments
Every major appearance by Alistair Darling is a blow for the Pound. This time isn’t different. At the annual budget release, Darling released a few disappointing statements sending GBP/USD towards an important support level.
Less than two months before the general elections, Britain’s budget was presented in parliament. Alistair Darling, Britain’s Chancellor of the Exchequer, defended the government’s role in dealing with global crisis, but his prospects for the future weren’t good enough. Darling has a history of hurting the Pound. Here are his actions this time:
Darling warned that confidence had not fully returned, especially in Europe. The growth forecast for 2010 stands at 1 to 1.5%, while the forecast for 2011 now stands on 3 to 3.5%. The government’s prospects were lowered, now more in line with many economists.
Even though nobody expected the British government to make painful cuts in the budget weeks before the elections, the national debt is still a great weight on the Pound. Darling didn’t address it. One of the dangers of a big debt is a credit downgrade. David Blanchflower of the Bank of England, begins to accept it:
“We have to be concerned about that, but no one has well- enumerated what it would actually mean if we did,” he said in an interview with Bloomberg Television yesterday. “I’m not so sure it would actually be quite as monumental.”
GBP/USD Reaction
The British Pound fell before Darling’s presentation, and accelerated its falls afterwards. It reached 1.4896 before climbing back above 1.49. GBP/USD approached the 1.4870 level which was the bottom two weeks ago.
A stronger point of support appears at 1.4770 – this is the line where the Pound bounced back when it made a big collapse at the beginning of March. This is also a historic line.
If GBP/USD recovers, 1.50 is the immediate resistance line, followed by 1.51. Note that the Pound also suffers from risk a stronger dollar across the board. EUR/USD collapsed earlier today and broke a very important support line.
Later in the week, British retail sales will move the Pound, as well as American figures, such as Ben Bernanke’s speech. Currently, the blow to the Pound is limited. A break under 1.4770 is necessary in order to trigger a new massive drop.
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