Despite the British conservative governmental choice to take the direction of lowering the budget deficit by placing austerities measures since it has started to rule after the labor government amid the debt crisis in EU, Fitch credit rating agency has changed the outlook of the British long term debt to negative from stable which means that there is 50% chance to lower its AAA rating in the coming 2 years by God's will.

Fitch has said that this step has come from its side because of it has addressed very limited fiscal space to absorb further adverse economic shocks amid the current debt crisis risks which weighing down on the economic growing pace of the Euro zone.

Fitch's decision has come last week even before the new budget announcement of 2013 which could be criticized too if it is to have stimulating plans because of the current high levels of debt or even if it is to have more austerities measures because of the current economic slow down!

While the inflation easing pressure in UK can help BOE to add more funds to its assets purchasing plan this year by God's will, after the inflation yearly rate had come under pressure in UK this year after diminishing the impact of the standard rate of VAT increasing to 20% from 17.5% on 4th January 2011 which has contributed in raising the inflation by about 0.75% yearly over all the months of 2011 to not be less than 4% yearly in any month of it, while the yearly inflation target of BOE is just 2%.

We have seen also last week significant drop of the wages in UK which can undermine the inflation upside risks too as UK Feb labor report has shown last week that UK ILO unemployment rate is still at 8.4% in the previous 3 months to January which is the highest since 1995 while in this same period, the average earnings excluding bonus have grown by 1.7% while the markets were waiting for easing back to just 1.9% from 2.0% and also the average earnings including bonus have decreased to 1.4% from 1.9% in the previous 3 months to December showing that's there is no worries about building inflation pressure, in the case of taking more easing steps by BOE.

The release of the MPC meeting minutes on the 9th of last February have shown also tendency of adding more funds by both of the MPC's members Posen and Miles who have voted in favor of increasing BOE's assets purchasing plan by Stg 75 Bln while the other 7 members were preferring increasing by just Stg 50 Bln to not increase the current markets worries about UK economy and the current pressure on it amid the easing of the global economic growth pace and the EU debt crisis negative impacts on the economy which dampened the confidence in the business spending and consuming spending which means that there is still chance for adding more funds to this plan by God's will in May after consuming the recent Stg 50 Bln added in that meeting next month as it is planed for spurring investment stimulating the economy which has contracted in the last quarter of 2011 by 0.2% growing yearly by just 0.7% on falling of UK quarterly total business investments by 5.6% which were expected to show decreasing by just 0.7% after rising by 1% in the third quarter of last year following strong rising in the second quarter by 11.6% referring to the strong need for the current QE policy while UK CPI is still heading down on the economic slowing down pressure which dragged the inflation rate down to 3.6% y/y in January from 5.2% in last September and we are waiting ahead tomorrow by God's will for the figure of February which is expected to show further easing to 3.4% yearly.

God willing, in the case of rising, the cable can meet now resistance at 1.5885 after breaking it previous resistance at 1.5745 by the end of last week after the data had come from US showing receding of the consuming confidence in March and monthly cooling of the industrial production in Feb beside continued easing of the inflation pressure over the consuming level after the producing level has shown also previously last week easing of the pricing power.

And in the case of breaking above 1.5885, it can meet another resistance at 1.60 psychological level after failing to break it by the end of last month making top at 1.5995 whereas it has started setting back to 1.5601 whereas it has formed its recent bottom which pushed it up to this current levels and in the case of declining, it can meet now supporting levels at 1.569 before 1.5601 again and breaking it can open the way for another supporting level at 1.5515 which can be followed by 1.5449 before another one at 1.5319 before its bottom at 1.5231.

Kind Regards

FX Market Strategist

Walid Salah El Din