British Pound Sterling encounters strong resistance against US dollar, public sector borrowing figures turn out to be a shocker

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Published on Friday, 20 July 2012 09:32

Written by Sam Coventry

International Money Transfers at our sister site

Are the government's deficit reduction plans working? Credit agency's will be asking this question, and thus we can expect more talk about the sustainability of the UKs golden credit ratings.

The pound sterling (Currency:GBP) is not looking too hot this morning following the latest set of public sector borrowing numbers.

A quick look at the spots shows:

The pound euro exchange rate is 0.05 pct higher than at Thursday night's close at 1.2807.


The pound dollar exchange rate is 0.16 pct lower at 1.5702.

The pound Australian dollar exchange rate is 0.07 pct lower at 1.5064.

Government borrowing was 14.4bn GBP last month, up from a 13.9bn GBP the previous year and significantly higher than the 13.3bn GBP that had been expected.

Are the government's deficit reduction plans working? Credit agency's will be asking this question, and thus we can expect more talk about the sustainability of the UKs golden credit ratings.

Also adding pressure was the IMF which published the Staff Report following its annual Article IV mission to the UK.

The central messages of the report are little changed from those of the mission's Concluding Statement, published in May.

In particular, the IMF calls for further monetary policy easing, including a cut in Bank Rate to 0.25% (although the report was finalised prior to the latest round of QE).

An interest rate cut will certainly hurt the pound sterling.

The IMF also suggests that the pace of consolidation should slow if the growth environment deteriorates further

Turning to the spot rates:

"The Pound encountered strong resistance in the region of 1.57 against the U.S Dollar and dipped lower last night following the latest economic data released in the UK. Retail sales was weaker-than-expected with a 0.1% monthly gain for June following a revised 1.5% gain for May," says Adam Solomon at TorFX.

Nevertheless, the Pound has regained ground quickly against the Dollar and particularly the Euro, rising to a fresh 44-month high beyond 1.28 last night.

"There has been further evidence of safe haven demand for the Pound but there will be longer-term speculation that Sterling could be subjected to renewed selling pressure," says Solomon.