The currency blog

Yesterdays UK public sector net borrowing came in at £11.4 billion- much higher than forecast. Going forward the growing concern on the debt levels in the UK will be a huge issue; to a degree the recent sterling fragility is due to the cloud of debt hanging over the UK. Sterling fell on the news and continues to come under pressure in the markets. The OECD did not help the pound by downgrading its economic forecast for Britain and raising the forecast for pretty much everyone else. As of writing the pound is falling against the USD, EUR and JPY.

Overnight the Nikkei has fallen sharply and this has added to weakening demand for the higher yielding/riskier assets. We have seen strength naturally flow back into the USD and the JPY and the commodity currencies are on the back foot. Japan left their interest rates unchanged as expected and upwardly revised their economic outlook- this has helped the keep the Yen firm across the markets. The EUR/USD trading range of 1.4750-1.5050 remains intact largely supported by Asian central banks.

Yesterday the Euro current account showed a deficit of €5.4 billion- this was concerning as it identified a surge in imports and slumping exports; this could bring the strength of the euro back to the fore as a red flag for the ECB.  If this issue is raised it could start to turn the tide on recent euro strength…

Discuss on this on the Currency Exchange Forum