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Weekly Forex Market Outlook: Fiscal Policies in the U.K.

Tired of bad news and boring calendars? You may find something different in the Britain. The Treasury will announce the U.K. pre-budget on Nov 24 when analysts expect to see tax cuts and spending plans. Interest rates are headed to zero around the world making the effectiveness of monetary policies more and more limited. It is when the prospect of economies, and certainly their currencies, has been increasingly related to stimulus packages and other forms of fiscal policies.

Alistair Darling in Focus
On Monday, the Chancellor of Exchequer Alistair Darling unveils the Pre-Budget Report (PBR). In a speech at the House of Commons he will explain how the combination of tax cuts and increase in spending could help the Britain to overcome the economic downturn or at least limit the consequences.

Almost all major economies have already announced similar measures but some analysts believe that the Britain may be better positioned to benefit from such policies.

Although the one side of any expansionary plan is the increase in money supply that tends to weaken a currency in the short term but it is important to remember that speculations about the details of the PBR, specifically new tax relief which encourage companies to bring back their profits to the U.K., worked as a support for the sterling in the last week.

New Economic Team
In the U.S., Timothy Geithner, President of the Federal Reserve Bank of New York, is to be the next Treasury Secretary according to aids who are close to the President-elect Barack Obama. In another move, Lawrence Summers, Bill Clinton’s last Treasury chief, may succeed Bernanke as the Fed chairman in 2010 when his term expires.

Obama may announce the decisions as soon as Monday. Equity indexes rose and yen weakened against major currencies last Friday in response to that news and it is possible to see some effects in Asian markets.

GDP Revisions
U.S. GDP shrunk in the third quarter but the first revised figures on Tuesday may show that the economic slump had been even deeper. A day after, monthly consumption data may also show that the most important driving part of the economy is still far from recovery. There will be GDP revisions in Germany and the U.K. but any surprise is more likely to be on the downside than the upside.

Euro-Zone CPI Estimate
November’s estimate of the Consumer Price Index in the euro-area will be released on Friday. It is expected to show a sharp decline reflecting the economic slowdown and the danger of deflation. It may be more important than ever when everything points to the possibility of a significant rate cut by the ECB in December.

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  1. Forex trading today is definitely not boring. Every day is a rollercoaster! Thanks to financial crisis, none of the general strategies work anymore…speaking of being unpredictable! But hey, now is the time to make real pips.

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