UK Public Borrowing Hit Record High in August

Public finance data this morning for net borrowing in the month of August in the UK has come in at the highest level on record for the month at £15.3 billion. This was £2 billion above forecast and following yesterday’s poor housing news has added further pressure to the Pound. Sterling was trading at the mid-market rate of 1.5540 against the US Dollar and 1.1821 against the Euro at 10.20 am this morning.

Pound Sterling – UK Markets

Sterling has continued its downwards slide against the Euro following a string of negative data. Yesterday’s poor news on house prices has been followed by poor public finance data this morning. This measures public sector net borrowing (the financial deficit in the UK national accounts) which has soared above expectations. Net borrowing was £1.991 billion in July and has risen to £15.302 billion in August – far above the forecast of £12.2 billion. Although this has put pressure on the Pound, some reports this morning are already suggesting that the Government is still able to meet its target for the full year so the affect may not last long term. The Government has borrowed £58.1 billion so far this financial year, compared to the £61.9 billion seen in the same period last year. Tomorrow sees the publication of minutes from September’s Bank of England rate meeting which will be watched by markets.

US Dollar – US Markets

The US Dollar approached a six week low against the Euro with expectations being that this week will further illuminate further the fragility of the housing market. Later today brings the Federal Reserve interest rate decision. It is widely expected that interest rates will remain unchanged at record lows but the meeting may reveal that the Federal Reserve are open to increasing debt purchases – a signal that the Federal Reserve are ready to take action on the slowing economy. The tone of the statement following the meeting will be closely monitored by currency investors. Also due this afternoon is another wave of data on building permits and housing starts.

Euro – European Markets

The Euro is still holding up well against the stalling Pound and US Dollar. This may continue if investor risk appetite this week is increased further by the number of bond auctions. Greece and Ireland have bond auctions today and Portugal has a bond auction tomorrow. Ireland’s auction today will be of particular interest in measuring investor confidence in the country following the Barclays Capital report last week claiming that Ireland may need external help due to lack of funds. The Irish Government is seeking to raise 1.5 billion Euros through the sale of four and eight year bonds. Risk appetite may also be improved by the granting of a triple A rating by Fitch and Standard and Poors’ to the European Stability Facility. Other Currencies – Highlights The Chinese Yuan has appreciated following US President Barack Obama’s public criticism of China in the ongoing situation surrounding currency issues. Obama’s criticism was for China’s failure to let the currency strengthen which gives an advantage to Chinese exports. The appreciation of the Yuan has come before scheduled talks between Obama and Wen Jiabao at this week’s United Nations General Assembly in New York. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000