Investors Pin Hopes on Olympics as UK Sinks Deeper into Recession

LONDON, July 26, 2012 /PRNewswire/ --

The first GDP estimate for the second quarter released on Wednesday, July 25, has confirmed the worst for the British economy: the country has fallen deeper into a recession, contracting 0.7% after shrinking 0.3% in the previous quarter. Analysts had widely expected a contraction of 0.2%.

Wednesday's GDP data has kept the uncertain economic clouds hanging over the UK economy and investors are hoping more than ever that the Olympics lives up to expectations and generates the much-needed business for the shrinking UK economy to bounce back in the next quarter. The 30^th Summer Games, which kick off on Friday, are expected to bring 5.3 million visitors to the city over the next few weeks.

Wednesday's GDP data could offer financial spread bettors an excellent opportunity to take a position on the UK markets, enabling them to profit from any subsequent rise or fall in the FTSE 100 or pound sterling.

Impact of Wednesday's GDP report on the markets

There are expectations from market analysts that Wednesday's figures could be revised over the coming months, with some predicting that the Queen's Diamond Jubilee holiday and unexpected wet weather threw figures out of balance. Yet for the moment, the GDP data remains glaringly real.

Already, the markets were struggling following news earlier this week that Moody's has downgraded its outlook for three major European nations over growing fears of Greece being able to retain a place in the eurozone and a notable escalation in the Spanish debt crisis.

The pound sterling weakened after the GDP data was released as not only did it highlight weakness in the UK economy, but investors used the deeper contraction as evidence that the Bank of England could increase asset purchases in the medium term, which historically can weaken the pound.

As of 10.30am on Wednesday, the pound sterling had hit a one-week low against the US dollar at 1.5478, while the FTSE 100 was also trading lighter having lost over 200 points between July 19 and July 24.

A chance to profit from falling markets with spread betting

As a spread bettor, you could instantly take a position on the markets following the release of significant economy data, such as this. Spread betting enables you to profit irrespective of whether the markets are rising or falling - you simply take a position based on which way you expect the markets to move, and buy or sell accordingly.

If, for instance, you expect the pound sterling to slip against the US dollar following the release of GDP data, you'd take a sell position (or go short) on the GBP/USD pair. If, on the other hand, you believe that investors had already priced in the negative GDP figures and are optimistic that the Olympics will boost the economy, you could take a 'buy' position (or go long) on the GBP/USD pair.

If you were right and markets move in the direction you had expected - ie if you had gone long the GBP/USD and prices rise, or if you had gone short and prices fall - you would make a profit. If, on the other hand, you had expected the markets to rise and they fell, or if you expected prices to fall and they rise, you would make a loss.

Spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

Find out how to spread bet or learn about the benefits and risks of spread betting with Finspreads.

Summary

*Spread betting is exempt from UK stamp duty and Capital Gains Tax (CGT). However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

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