The Pound strengthened against the Euro, US Dollar and other major peers on Friday due to the release of higher-than-expected UK public sector borrowing data.
According to the Office for National Statistics, UK public sector net borrowing increased to £11.48 billion last month from the upwardly revised figure of £9 billion seen in April. The figure was better than economists had expected. Analysts had been forecasting for a net borrowing rise to £12 billion.
Further gains were somewhat restrained after a separate report showed that the UK’s budget deficit was little changed in May compared with the previous year. Net burrowing was around £13.3 billion, compared with the £12.6 billion seen in 2013.
The ONS said that last year’s May borrowing figure had been boosted by £3.9 billion from transfers from the Bank of England’s Asset Purchase Facility and a £0.9 billion tax receipt from Switzerland. The factors did not figure this May.
Without those factors, the data showed that total current government receipts were broadly the same in May as they were in the corresponding month last year and total current expenditure was also stable.
Sterling remains supported by expectations that the Bank of England will raise interest rates ahead of the other major Central Banks.
The US Dollar meanwhile remains under pressure after the Federal Reserve was more dovish than expected regarding a rate rise at its policy meeting on Wednesday.
Investors widely ignored yesterday’s data which showed that the number of people making initial jobless claims fell more than forecast and that manufacturing activity in Philadelphia expanded at its fastest pace in eight months.
The Euro was under pressure from a disappointing German producer price inflation report and comments by the International Monetary Fund that the ECB should introduce a quantitative easing programme to tackle the threat of deflation.
Updated: 10:15 GMT, Saturday 21st June
Since the beginning of June the Pound to US Dollar (GBP/USD) exchange rate has moved from 1.68 US Dollars to 1.70 US Dollars – thanks in large part to speculation surrounding the prospect of interest rate increases occurring in the US and UK.
Similarly, the Pound to Euro (GBP/EUR) rate has moved from 1.23 Euros to 1.25 Euros as the fiscal policies being adopted by the Bank of England and European Central Bank become increasingly divergent.
Although this week’s BoE meeting minutes were a little flat, and UK inflation/retail sales figures broke the recent run of overachieving domestic reports and put some pressure on the Pound, we forecast that the Pound could continue trending higher for the rest of the month.
If UK fundamentals, including next week’s house price figures, consumer confidence and GDP reports meet or exceed expectations it will support the case for borrowing costs being raised within the next few months and could see the Pound Sterling (GBP) exchange rate touch fresh highs.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.7057 ,
Pound Sterling,,Euro,1.2534 ,
Pound Sterling,,Australian Dollar,1.8150 ,
Pound Sterling,,New Zealand Dollar,1.9607 ,
US Dollar,,Pound Sterling,0.5863 ,
Euro,, Pound Sterling ,0.7979 ,
Australian Dollar,, Pound Sterling ,0.5509 ,
New Zealand Dollar,,Pound Sterling,0.5100 ,
[/table]
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