ExchangeRates.org.uk – The Pound (GBP) came under modest selling pressure on Wednesday as GBP investors digested the UK’s latest public borrowing figures. Data published by the Office for National Statistics (ONS) showed the £3.1bn to balance the books in July. This was over twice as much as the £1.5bn that had been forecast. The data also showed that the UK’s national debt has ballooned to its highest levels since the early 1960’s, with the share of debt rising to 99.4% of the UK’s GDP. July’s borrowing figures weighed on GBP exchange rates on Wednesday as analysts speculated on what they could mean for Rachel Reeve’s first budget as Chancellor. Analysts warned that borrowing is likely to overshoot the Office for Budgetary Responsibility’s (OBR) 2024/25 borrowing forecast by around £5bn and this is likely to push Reeves to raise taxes and reduce spending.
Cara Pacitti, senior economist at the Resolution Foundation, commented ‘With borrowing £3 billion higher-than-expected in July, the deteriorating state of the public finances illustrate the challenges that Rachel Reeves will face ahead of her first Budget this Autumn. ‘The fiscal inheritance facing the Chancellor is one of rising taxes, increasing spending challenges, and very little wriggle room in the event of bad economic news. This combines to create a challenging backdrop for the new Government to realise its ambitions of boosting growth while putting the public finances on a sustainable path.’
Further limiting demand for the Pound on Wednesday was a cautious shift in market risk appetite.
US Dollar (USD) Firms as Markets Await FOMC Minutes
The US Dollar (USD) traded with modest gains during Wednesday’s European session as markets braced for more insight into how the Federal Reserve will shape in the coming months. Wednesday evening sees the release of the minutes from the Federal Open Market Committee’s latest meeting in July. This will then be followed by the opening of the Fed’s annual Jackson Hole symposium on Thursday. Both events should help to shed more light on the US central bank’s plan to begin normalising interest rates. While a September rate cut is widely priced in, it’s unclear how aggressively the Fed will loosen its monetary policy through the remainder of 2024. If the recent market panic over a potential US recession pushes the Fed into adopting a more dovish tone, it’s likely the recent USD selloff will resume and the US dollar could even test new multi-month lows.
Exchange Rate Forecast: Rise in UK Services PMI to Lift Sterling?
Looking ahead, the Pound US Dollar exchange rate may rebound during Thursday’s session with the publication of the UK’s latest PMI figures. GBP investors will be primarily focused on the performance of the UK’s vital services sector. If August’s preliminary PMIs report an acceleration of service sector growth if could give Sterling a leg up at the start of the session. Thursday will also see the publication of the latest US PMIs, which are forecast to report another solid expansion in the US private sector this month. However, any resulting upside in the US dollar may prove limited as USD investors are likely to instead focus their attention on the start of the Fed’s Jackson Hole summit.
This content was originally published on ExchangeRates.org.uk
