22nd December 2010
Good morning. The pound fell yesterday on record high UK borrowing, and that called into question whether the government can meet its deficit cutting target. After some poor UK data, analysts said investors were concerned that the recovery may falter in the first quarter in 2011. As a result, rates at 08:30am are as follows:
Sterling falls on public borrowing
The amount of new public sector borrowing hit a fresh record high in November. The borrowing figure was pushed higher by increased spending on health, defence and the EU. The latest figures are likely to raise concerns about the government's efforts to reduce the UK's budget deficit.
A Treasury spokesman said: "November's borrowing figures show why the government has had to take decisive action to take Britain out of the financial danger zone." The poor figures weakened the pound, and rates fell against the Euro, hit a 3 month low against the US Dollar, and against the Australian Dollar Sterling is at a 25 year low.
Analysts said sterling's falls against the Euro may be limited as worries the euro zone debt crisis could continue well into 2011 keep the shared currency under selling pressure, but UK-specific concerns will cause it to weaken against other currencies.
"Sterling is more vulnerable against the dollar and non-euro crosses. If there are more pressures on the euro zone next year then the euro and sterling could be held relatively close together," Standard Bank's Barrow said.
We have the Bank of England minutes that will show how the MPC voted 2 weeks ago. Recently there has been a 3 way split highlighting indecision on rate movements and further QE. This is the most important release for the week and could cause Sterling volatility, especially due to the thin holiday trade.
Labels: GBP/AUD 25 year low, Public Sector Borrowing