UK borrowing figures put the pound on the decline

On the face of it yesterday’s government borrowing figures were positive, but markets reacted negatively to the total deficit for the tax year to date.

The pound is largely holding opening levels or rebounding this morning. GBP/EUR is trending at €1.0905, while GBP/USD is also flat at US$1.2820. GBP/AUD has hit AU$1.6251 after notable gains, while GBP/NZD has shot up 0.8% to NZ$1.7746. GBP/CAD is making minor gains and is trending near CA$1.6138.

There is no UK data set for release today, but will the pound continued to recover as markets look more favourably on yesterday’s borrowing data?

What’s been happening?

Public sector borrowing figures seemed positive when they were first announced yesterday. July is always a good month for government finances thanks to certain tax deadlines that massively boost revenue. Even so, borrowing excluding the banking groups posted its first surplus since 2002.

So why was the pound so miserable? So far this year, the government has borrowed 9% more money than it had by this point in the previous tax year. Now we are a third of the way into the new fiscal year, it is hard for markets to dismiss the odd above target spending figure, as a trend is beginning to emerge.

News of tumbling investor confidence in the Eurozone helped to curb the extent of losses suffered by GBP/EUR. Survey data published by ZEW shows a sharp slump in economic sentiment towards both the German economy and the Eurozone economy as a whole.

Strength from the US dollar pushed GBP/USD down to a 40 day low yesterday, despite the lack of any meaningful data from the United States. This was mainly due to investors being of the mindset that ‘no news is good news’ - silence from the White House is somewhat preferable from a market point of view compared to the controversies of late.

What's coming up?

The UK economic data calendar remains empty today, leaving the pound to react to long-term concerns regarding the UK economy, or strength or weakness in the other major currencies. It seems that markets have gotten over the negative aspects of yesterday’s borrowing figures, but there is always a chance that something Brexit related could pop up and undermine or boost appetite for sterling.

European Central Bank president Mario Draghi has delivered a speech this morning. It will take some time before it becomes clear how the markets react to his comments.

There is a smattering of fairly impactful US data on the calendar today. As well as the MBA mortgage applications figure for the week ending August 18, manufacturing, services, and the composite PMIs from Markit are due for publication. Federal Reserve official Robert Kaplan is also scheduled to give a speech.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.