UK Public Sector Borrowing Rises Significantly
The pound to US dollar rate is managing to shake off heightened expectations of a Bank of England (BoE) interest rate cut and lingering fears over EU-UK trade negotiations. Already buoyed by Tuesday’s better-than-expected job market figures, the pair found additional support from an increase in UK public sector borrowing yesterday. According to monthly figures from the Office for National Statistics, government borrowing fell slightly in December, but the total for the financial year to date (£54.6 billion) remains significantly higher than in 2017/18 – to the tune of £4 billion. The rise on the previous year follows government pledges to boost investment after a decade of austerity.
The news not only reduced the odds of a BoE rate cut – which fell from 70% to 50% following the encouraging jobs report – it caused the GBP vs USD rate to leap from 1.29 on Monday to 1.31 yesterday.
President Trump complains about Federal Reserve rate policy.
Donald Trump used an interview with CNBC during the World Economic Forum in Davos to question the Fed’s interest rate policy and to bang the drum for a reduction in the cost of borrowing. The US President said: “We have the dollar, and the dollar’s very strong…But, you know, we’re paying higher interest than other countries because of the Fed” When asked if he felt the rate is currently at a good level, he said: “I think the rate should go down” Before adding: “I want this dollar to be strong. I want it to be so powerful. I want it to be great. But if you lower the interest rates, so many good things would happen.”
As the relationship between Mr Trump and the Fed becomes increasingly fractious, one thing is almost certain: an interest rate cut would put serious pressure on the value of the dollar.
The dollar was given a boost yesterday by a surge in existing homes sales, which jumped to their highest level in nearly two years in December. Further proof that lower mortgage rates are providing the housing market with an injection of strength, having hit a soft patch in 2018.
Tomorrow’s business surveys could influence the pound’s performance. Manufacturing is forecast to improve but remain in contraction territory, while the services sector is expected to demonstrate continued growth.
Jobs figures hit the headlines in the US today. Tomorrow sees the release of US business surveys as well, with manufacturing and services indices both forecast to remain in expansion territory.
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