British trade balance disappointed for a second month in a row, with a deficit of 7.3 billion pounds, higher than predicted. This joins other bad news that the Pound receives this week, indicating that last week’s rally was only a one-time event.
GBP/USD is trading slightly lower than before the release, at 1.4440, and the trend is now downwards. This isn’t the only deficit that the UK is suffering from right now:
The deficit surprisingly fell two months ago, reaching only 6.2 billion, significantly better than 7.3 billion that was predicted. Last month already saw a return above 7 billion, with a disappointing outcome of 7.5 billion, worse than 7 billion that was predicted.
Earlier this week, the British budget deficit was in the headlines. The new British Prime Minister David Cameron began preparing the people for bad days. He said that the situation in Britain is worse than he thought and that severe austerity measures were necessary.
The result of these steps, or of the deficit, would be many years of economic pain, making a scary comparison:
Greece stands as a warning of what happens to countries that lose their credibility, or whose governments pretend that difficult decisions can somehow be avoided
While many in Britain disagree with Cameron’s dark stance, saying that it’s a classic trick by a new government, the budget cuts are backed by Fitch, that warned about Britain’s formidable fiscal challenge.
These talks hurt the Pound this week, as it dipped below 1.44 yesterday, hitting 1.4345, before recovering back to 1.4450 before the release of trade balance.
The Pound enjoyed a temporary rally last week, as it enjoyed news from the failure of the Prudential- AIG Asia deal. After reaching the key resistance line of 1.4780, it fell sharply down.
The Pound is capped by a minor resistance line of 1.4610 from above, and 1.44 below. Both are weak lines. A stronger support line appears at 1.4230, which was the year-to-date low. This line is followed by 1.4130.
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