Good Morning. The pound has fallen again this morning, after the Federal Reserve in the USA raised its discount rate. This has made the dollar more attractive to investors, and the pound has lost out as a result. Rates @ 08:30am are as follows:
- GBP/EUR 1.1430
- GBP/USD 1.5392
- GBP/AUD 1.7276
- GBP/NZD 2.2146
- GBP/CAD 1.6160
- GBP/NOK 9.2658
- GBP/JPY 141.62
- GBP/NOK 9.2649
- GBP/ZAR 11.842
- EUR/USD 1.3464
The drop today follows drops yesterday after figures showed the government borrowed another £4.3bn last month to plug the growing hole in the UK’s finances. It is the first time the government has borrowed money in January (usually a bumper month for income from tax receipts) since records began in 1993.
Chancellor Alistair Darling recently came under pressure from a number of leading economists to act more quickly in cutting the size of the budget deficit. As we said earlier in the weak when rates were close to a 6 month high, it was likely that rates would retreat again as has happened several times in the last few months. Those that took our comments on board and secured a Forward contract were able to lock in rates at a 6 month high, and have been unaffected by the drop.
UK Budget deficit
It’s the amount of money the the government owes that is keeping the pound weak. Earlier in the weak, 20 leading economists back the Conservatives in reducing this deficit as soon as possible.
This morning however, more than 60 senior economists have signed two open letters that back the chancellor’s decision to delay government spending cuts until 2011.
The letters in the Financial Times say that any measures to trim the budget deficit this year could risk dragging the country back into recession. You can read more about this news on the BBC site here.
I would tend to agree that the deficit needs to be reduced very soon, and not “in the next 4 years” as the chancellor has stated. Our debt levels as a portion of GDP is comparable to Greece – and we all know what’s happening there at the moment.
The indecision and uncertainty is likely to put further pressure on the pound. The chancellor should heed the suggestion I often give to my clients – indecision is often worse than a poor decision!
Today we have UK retail sales figures which is a barometer of consumer confidence. To get more information on our commercial exchange rates and to find out how our service works, click below to register a free trading account, without obligation.
Enjoy your weekend.
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