Sterling took a step lower against the euro today and moved very slightly lower against the US dollar after UK data was released showing unexpectedly high public borrowing figures for November.
The Public Sector Net Borrowing Requirement result has called into question whether the government can meet its deficit-cutting target. The figure came in at almost £23billion in November, up from targets and last year’s figure of £17billion. The data, in conjunction with recent weak retail sales data, has shifted focus onto the state of the UK’s fragile recovery and its ability to grow in Q1 next year.
Despite this momentary blip, focus will undoubtedly return to the state of the EU and its debt crisis. Having had Ireland’s credit rating reduced to that of Trinidad & Tobago, Moody’s has now put Portugal on review for a possible (imminent) downgrade. Expect to see this saga continue throughout 2011.
In other news, the Swiss franc is continuing its bull charge as it smashes through all time highs against all of its major counterparts.
Tom Hampton
Analyst – Caxton FX
Showing posts with label Spending cuts. Show all posts
Showing posts with label Spending cuts. Show all posts
Tuesday, 21 December 2010
Wednesday, 10 November 2010
Sterling gets a ‘pick me up’
Sterling strengthened against all of its major counterparts, to hit a six week high against the euro and pass $1.61 against the dollar, following the Bank of England inflation report this morning.
The BoE revised up its outlook for inflation over the next two years, further reducing the chances of an increase in monetary easing. The bank adjusted its forecast, stating that inflation is likely to remain above the 2% target, possibly through until the end of 2012. With a VAT rise of 2.50% due on January 1st, a move to increase the asset purchase programme would put too much upward pressure on an already above target rate of inflation.
The report did still have the hallmark of a dovish Mervyn King, outlining the significant uncertainties that surround the UK economy and problems that it faces next year (not to mention the vicious government spending cuts). After all, a Japanese-style scenario still looms with the possibility of high inflation and low growth over the coming months/years.
In other news, the single currency is at its lowest figure against the greenback since May, proving that the new debt issues surrounding the eurozone are starting to take their toll. If the troubles continue to hit the headlines we could see investors run from the euro as we head towards Christmas.
Tom Hampton
Analyst – Caxton FX
The BoE revised up its outlook for inflation over the next two years, further reducing the chances of an increase in monetary easing. The bank adjusted its forecast, stating that inflation is likely to remain above the 2% target, possibly through until the end of 2012. With a VAT rise of 2.50% due on January 1st, a move to increase the asset purchase programme would put too much upward pressure on an already above target rate of inflation.
The report did still have the hallmark of a dovish Mervyn King, outlining the significant uncertainties that surround the UK economy and problems that it faces next year (not to mention the vicious government spending cuts). After all, a Japanese-style scenario still looms with the possibility of high inflation and low growth over the coming months/years.
In other news, the single currency is at its lowest figure against the greenback since May, proving that the new debt issues surrounding the eurozone are starting to take their toll. If the troubles continue to hit the headlines we could see investors run from the euro as we head towards Christmas.
Tom Hampton
Analyst – Caxton FX
Monday, 18 October 2010
Sterling awaits Wednesday’s MPC minutes
With the calendar quiet on the data front, sterling has fallen by more than half a percent against the US dollar to trade just above the $1.59 level and has also lost ground to the euro, dropping below €1.14.
The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.
The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.
In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.
Tom Hampton
Analyst - Caxton FX
The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.
The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.
In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.
Tom Hampton
Analyst - Caxton FX
Tuesday, 8 June 2010
How will the government’s proposed spending cuts impact sterling?
David Cameron paves the way for ‘painful cuts ahead that will be unavoidably tough’, with details in the emergency Budget on June 22nd.
The impact of any proposed measures has raised concerns about the prospects for the UK economy, particularly considering the fragile nature of the recovery. This could have a distinct effect on sterling as investors show caution against buying into the currency.
“The pound’s rally against the euro could come to an abrupt halt should the spending cuts prove to be too much too soon. The government needs to find a fine balance: one that sufficiently appeases the market’s desire to see the deficit cut, but falls short of strangling the fledgling recovery,” comments Duncan Higgins, senior analyst at Caxton FX.
So where does this leave sterling over the longer-term?
“Through the summer, we expect to see sterling’s rally against the euro continue, albeit at a more gradual pace than we have seen recently. Fears about the eurozone banking crisis are failing to subside and investors will be inclined to continue selling the currency, particularly as most eurozone officials seem apathetic, even content, with the euro’s slide,” says Higgins.
Duncan Higgins continues, “Into the longer term sterling’s strength could be undermined as the UK’s economic figures begin to reflect the spending cuts. April’s Budget forecast for economic growth in 2010 and 2011 could well prove to be optimistic in light of new government policy. The Bank of England, in order to shield the economy against the cuts, will also be far less inclined to raise interest rates, seeing an increased pressure on sterling.”
The impact of any proposed measures has raised concerns about the prospects for the UK economy, particularly considering the fragile nature of the recovery. This could have a distinct effect on sterling as investors show caution against buying into the currency.
“The pound’s rally against the euro could come to an abrupt halt should the spending cuts prove to be too much too soon. The government needs to find a fine balance: one that sufficiently appeases the market’s desire to see the deficit cut, but falls short of strangling the fledgling recovery,” comments Duncan Higgins, senior analyst at Caxton FX.
So where does this leave sterling over the longer-term?
“Through the summer, we expect to see sterling’s rally against the euro continue, albeit at a more gradual pace than we have seen recently. Fears about the eurozone banking crisis are failing to subside and investors will be inclined to continue selling the currency, particularly as most eurozone officials seem apathetic, even content, with the euro’s slide,” says Higgins.
Duncan Higgins continues, “Into the longer term sterling’s strength could be undermined as the UK’s economic figures begin to reflect the spending cuts. April’s Budget forecast for economic growth in 2010 and 2011 could well prove to be optimistic in light of new government policy. The Bank of England, in order to shield the economy against the cuts, will also be far less inclined to raise interest rates, seeing an increased pressure on sterling.”
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