UK Struggles with Debt Affordability

Bernanke’s comment, stating that the US economy still faces formidable headwinds, has strongly influenced the markets overnight causing an increase in risk aversion. As a result, safe haven currencies, such as the USD and Yen, have benefited, during the early morning with EURUSD falling to 1.4750(see chart) and the USDYEN dropping to 88.50.

In recent hours, the German Industrial Production figure posted a 1.8% monthly decline versus an expected 1% rise. This result indicates that conditions will remain difficult during next year with German businesses struggling to cope with both limited credit and falling demands for their products.

Consequently, the Euro is now under further pressure as the Euro-zone also needs to content with economic problems emulating from its member countries such as Portugal, Spain, Italy and especially Greece.

The GBPUSD fared badly overnight by collapsing to its present value just below 1.6300. This is the result of expert opinion recently released claiming that the UK was facing its biggest budget deficit since 1945 and was, in fact, burden with an ‘inexorable deterioration of debt affordability’.