Pound Falters As UK Budget Deficit Gets Plump For Christmas

The Pound has lost some of its recent gains since 9.30am when swelling budget deficit figures were released in the UK. As the Government prepares to implement the much debated spending cuts, net borrowing hit £22.8 billion compared to £16.7 billion a year earlier. Despite higher than forecast Inflation figures last week spending for November has risen to its highest levels since February. This news comes the day before the Bank of England minutes are due – the general sentiment prior to January’s VAT rise is shaping up to make Sterling potentially vulnerable.

Pound Sterling – UK Markets

Although we have seen overall gains on the Euro so far this week, the net borrowing figures which illustrated a swelling budget deficit in the UK created an instant drop in Sterling as the currency faltered this morning. Details of the outlook for UK growth as well as the split in voting on monetary policy revealed in the Bank of England minutes tomorrow may be significant in shaping the way for Sterling towards the end of the year. Sterling had initially risen on the back of the CBI’s expectation for an interest rate rise in the next six months yesterday but the currency is still venerable. The UK’s ongoing exposure to problems in the Euro zone may also add to this fragility. Speak to your broker to discuss how to protect your transfers from potential fluctuations

US Dollar – US Markets

The Dollar performed well yesterday hitting a two week high against the Euro which was largely due to weaknesses inherent in the single currency. It has subsequently moved off these highs but Q3 GDP figures tomorrow will paint an interesting picture. Tensions in Korea have somewhat subsided decreasing the Dollar’s use as a safe currency and re-igniting demand for riskier currencies, but with the holiday season looming there is a possibility that traders will look for a safe place to invest whilst they tuck into some turkey.

Euro – European Markets

The Euro has moved off yesterday’s lows against the Dollar and Sterling although is still relatively weak as last week’s downgrades continue to take their toll and France becomes the next economy under scrutiny. It has been suggested that France’s triple A rating may be under threat next year as their debt issues come under further scrutiny with the price of insuring French debt rising to record levels yesterday. This accompanies the burden of continuing unease about Ireland’s bailout package making for a very nervous Euro. The Euro sank to an all time low against the Swiss Franc which has benefited from sovereign fears.

Other Currencies – Highlights

The Bank of Japan has left interest rates unchanged at 0 -0.1 percent but will continue with its programme of purchasing assets and provide liquidity to support demand. Over the past year, the strengthening Yen has been a serious problem for the export-based nation although the currency has seen easing more recently although there has been poor factory output and weak business sentiment. Last month Japan passed a 39 billion Pound stimulus package to help the economy. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.