Pound falls on debt fears.

Good Morning. Sterling slipped on Thursday as UK borrowing data underlined Britain’s deteriorating finances, while a sell-off in high-risk currencies also kept the pound under pressure. At 08:30am the snapshot of pound rates are as follows:

  • GBP/EUR 1.1141
  • GBP/USD 1.6610
  • GBP/AUD 1.8068
  • GBP/NZD 2.2744
  • GBP/CAD 1.7675
  • GBP/CHF 1.6849
  • GBP/ZAR 12.452
  • GBP/JPY 147.53
  • EUR/USD 149.05

Pound Falls
Sterling fell after data showing that the UKs public finances deteriorated at a much faster pace than expected in October, taking public borrowing to its highest on record. There was also a rise in Retail Sales for the UK, but the borrowing data overshadowed that and caused rates to fall.

Ratings agencies have said Britain may face a possible cut in its sovereign rating if its fiscal position gets worse. This would ruin the appeal of UK government debt and probably prompt investors to pull funds out of the country into other currencies percieved as safer. This will hurt Sterling in the Short to Medium term .

Analysts said the data highlighted the need for Britain to rein in borrowing or face the possibility of a ratings downgrade. Such measures, coupled with ongoing low interest rates would keep sterling weak in the medium to longer term. Despite this, the government continue to borrow more and more money, still trying to spend their way out of the problem.

In the Queens speech, the government stated it would pass law to ensure the deficit was halved within 4 years, however they did not mention how they were planning to do this. At all. Not even a hint (!). This is worrying, as it seems that it is adopting the Emu’s policy of dealing with problems, sticking it’s head in the sand and hoping it will go away. Excellent policy…

Many in the market say Wednesday’s Bank of England minutes did little to change the view among investors that UK rates will stay low into next year, which is seen as negative for sterling as other central banks begin to raise rates.

Elsewhere, the Nationwide also delivered a gloomy forecast for the UK economy, which you can read on the BBC here.

Summary
As the world exits recession, our governments policies mean that we are lagging behind in a big way, and there’s no sign of this changing in the near future. Rates are low, debt is high, unemployment is rising still, and all of this means that the UK is not an attractive place for investors. Other currencies such as the Euro and Dollar are more attractive, and this doesn’t bode well for those hoping exchange rates will rise.

Sorry for the gloomy outlook that seems to be mirroring our weather before the weekend, but that’s the state of play at the moment.

Todays Data
A quiet Friday. We’ve already had consumer price index for Germany. This was worse than expected, but GBPEUR rates still fell due to the reasons already outlined above.

Later we have a speech by the European Central Bank.

Whatever you’re doing over the weekend, have a good one!

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