Lower borrowing leads to sterling improvements
22 September, 2017
Yesterday saw sterling improvements as the Pound recovered to the recent highs seen earlier in the week, after government borrowing figures for August were released and came in better than expected. Public borrowing was at its lowest August level since 2007, at £5.7bn, compared to forecasts of £6.5bn and figures of £7bn a year ago.
The news came as a boost to the Chancellor ahead of the November Budget, and followed Wednesday’s good retail sales figures, which led to increased VAT receipts that in turn helped reduce borrowing, which is now on track to beat the OBR’s forecasts from earlier this year.
What does this mean for the Pound? Any signal that the UK economy remains robust in the wake of faltering Brexit negotiations and a shaky few months, is seen as positive for holding GBP assets and gives sterling improvements – good news for those of you who need to send money abroad in the coming weeks and months. But one-off data releases often cause a spike up in rates and of course we could easily see the Pound fall back again into the underlying weakening trend seen in recent weeks.
Sterling finished the day around 0.5c up against the Euro and 1c up against the US Dollar.
Crunch Brexit speech due today
Today we have no major UK data, but key speeches from Theresa May and ECB President Mario Draghi will likely cause some volatility for exchange rates. Mrs May’s speech in Florence will be aimed at breaking the deadlock reached in recent Brexit negotiations and could be a defining moment in both her Premiership and the eventual Brexit settlement – whether we will see more sterling improvements or a sudden drop for the Pound is anyone’s guess. Speculation is that the government will offer some further payments into the EU Budget – €20bn has been mentioned – after the UK leaves the EU, to meet its commitments to funding EU institutions’ pension and budget. This would mean the EU Budget will not need to be rewritten until it is next due to be negotiated (without the UK) and would alleviate fears in poorer member states that Brexit could directly affect their payments from the EU.
While Leave campaigners will likely object, the gesture may bring EU negotiators closer to the UK’s position on commencing trade talks, which are seen as crucial for economic prosperity – so an upbeat speech from Mrs May that goes down well in Brussels and Berlin, may cause further sterling improvements today. If that happens and you want to take advantage, talk to your Currency Index account manager or register for an account with us to access our live rates and award winning customer service.
Elsewhere as well as Mario Draghi’s speech today, we have Canadian inflation and retail sales figures at 1.30pm, to keep an eye on if you need to send money to Canada.
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