Australian dollar makes sharp gains against the pound

The Australian dollar made sharp gains against sterling yesterday, as the pound dived after the UK annual budget. The government forecast a massive increase in public debt and announced tax rises for high earners. The UK finance minister predicted the UK economy would contract by 3.5 percent this year while government borrowing would climb to £175 billion, or more than 12 percent of Britain’s GDP. Meanwhile, proposed tax hikes for high earners also heaped pressure on sterling, with fears this could see talent go abroad. The main worry for markets at the moment is the UK's ability to service its debt. Any hint by ratings agencies that Britain’s credit rating might be lowered will see further mass selling of sterling.