Sterling rallied against the US Dollar today, but Philip Hammond has the arduous task of balancing the UK’s public finances. Data published by the Office for National Statistics (ONS) showed that the public sector’s net borrowing increased in June, on a year to year basis, despite analysts’ expectations that it would decline. The report showed that the British government is on track to borrow more money this fiscal year than the previous one. The Treasury issued a statement admitting that the national debt remains high and the UK economy is vulnerable to future shocks.

In the Eurozone, the financial conditions seem to be much better. Mario Draghi, the head of the European Central Bank (ECB) boosted the Euro when he said that in autumn, the ECB board will discuss its monetary stimulus programme. Analysts believe that in the next ECB board meeting in September, the monetary policymakers will decide to reduce the size of the programme that helped the ECB control the consequences of the financial crisis. As a result, the Euro hit a two-year high against the US Dollar.

Pound Sterling – UK Markets

Today, Sterling rallied against the US Dollar with the exchange rate set at $1.30. The Pound also managed to edge up against the Euro, trading at €1.11. Despite the Pound’s good performance today, Philip Hammond saw a clear deterioration of the UK public finances, on a yearly basis, according to data released by the ONS.

The UK’s public-sector net borrowing increased to £6.9bn in June 2017, compared to the £4.9bn in June 2016. In May, the government had borrowed £0.2bn less. Since the beginning of the financial year in April, the British government has borrowed almost £2bn more than in the same period in 2016. Analysts had expected that the monthly deficit would drop to £4.7bn, but the ONS data indicates that the public finances are in a worst state than previously thought.

An ING report says that there are warning signs flashing for the British economy and that any “soft” Brexit euphoria is beginning to retreat as the difficult negotiations with the EU have started. The bank’s analysts suggest that there is little reason to doubt that Sterling will be one of the underperforming currencies in the G10 group over the coming months.

US Dollar – US Markets

The US Dollar dipped against the Euro, with the exchange rate set at €0.85. The US currency was unable to resist the boosted Euro, almost hitting a two-year low against the single market currency.

Since the beginning of the year the US Dollar has lost 10% in value against its Eurozone rival. The fall started last week when the Fed Chair Janet Yellens’ comments before Congress seemed to put off the third interest rate hike in this year. The failure to pass the new healthcare bill and the rift between the Republican senators seems to put a strain on any further plans for reforms. However, House Speaker Paul Ryan said that the administration intends to push ahead the long-awaited tax reform.

The news that Special Counsel, Robert Mueller, expanded his Russia investigation to Donald Trump’s businesses hurt the US Dollar further. Mueller will investigate into a broad series of transactions involving firms owned by Trump and his associates. One of Trump’s lawyers said that he’s unaware of the inquiry and added that he considers it well beyond the mandate of the Special Counsel. Market analysts expressed the opinion that the Russia probe is acting as a distraction from efforts to push through the reforms that the US President has promised.

Euro – European Markets

The Euro jumped against the US Dollar, recording a two-year high with the exchange rate set at $1.16. The last time that this rate was recorded was in August 2015. The single market currency managed to hit briefly an eight-month high against the Pound, but has retreated now to lower levels.

The single market currency was boosted from comments made by Mario Draghi in the press conference after the ECB’s board meeting in Frankfurt. The ECB’s president said to journalists that the board will discuss the ECB’s monetary stimulus programme in autumn. Thanks to this programme, the ECB buys €60bn of Eurozone government bonds each month. With the Italian banker saying that there will be future discussions on the stimulus, investors and traders believe that at September’s ECB meeting, there will be a decision to trim the pace of the programme.

Draghi said that the ECB will remain in the market for a long time because the Eurozone inflation is far below the central bank’s target. Draghi’s words and the decision of the ECB board not to hike interest rates made the economy forecasters review their inflation projections for the next couple of years. According to them, inflation will be at 1.5% this year, at 1.4% in 2018 and at 1.6% in 2019. It should be noted that the ECB has set the target for inflation at 2%.

Other Currencies – Highlights

Sterling rallied against the Australian Dollar, trading at 1.64 AUD. The Aussie dropped when the Deputy Governor of the Reserve Bank of Australia (RBA), Guy Debelle, said that there is no automatic reason for raising borrowing costs just because other central banks in the world do the same thing. Debelle stressed that markets should not read too much into the RBA’s board member discussion about the neutral interest rate, during July’s meeting. The Deputy Governor repeated that a stronger Aussie would complicate the economy adjustment.

The Pound slumped against the New Zealand Dollar, trading at 1.74 NZD. Steven Joyce, the New Zealand’s finance minister, while talking on Bloomberg, said that he isn’t worried about the strength of the Kiwi. Joyce said that the Kiwi reflects the strong New Zealand economy and said that consumers are benefitting from the low levels of imported inflation. At the end of the interview, Joyce expressed the opinion that the new Reserve Bank of New Zealand’s (RBNZ) Governor might be named after the parliamentary elections.