The Pound climbed to a 13-month high against the US Dollar after the UK government released better than expected borrowing figures.
The Pound hit $1.63 – an increase of 0.5% – the highest rate against the dollar since August 2011.
The price fell back to $1.62 as some speculators traded gains, but is not expected to slide much further.
The big fillip to the Pound came from the UK public sector borrowing figures for August, which weighed in at £14.4 billion against a predicted £15 billion.
Speculation out of Spain that the government is about to succumb to outside borrowing to bolster the economy also led speculators and investors to run for a safer currency haven.
Two months of gains
“Sterling made a brief high just over $1.63 on Friday morning, marginally above the high for 2012, which we saw back in April, despite the release of record government borrowing figures during the month of August. This follows almost two straight months of gains against the Dollar, leaving the Pound 5% higher over the period,” said Andy Scott of currency exchange brokers HiFX.
The Federal Reserve’s open-ended promise to increase quantitative easing has weakened the dollar in recent weeks, leaving room for the Pound to thrust ahead.
“For Dollar buyers thinking of holding off, we would highlight the last time we were at $1.63 was in April when the Pound then dropped 10 cents in a month. Expectations then, like now, were that there would be no imminent policy of easing by the Bank of England which was quickly flipped when the bank signalled it may cut interest rates or increase its asset purchase programme again,” said Scott.
Rate cuts expected
“With the European Central Bank standing ready to buy unlimited sovereign bonds, easing and stimulus measures having been announced by the Federal Reserve, the Bank of Japan and several other central banks expected to announce rate cuts in the coming weeks; it would be brave not to expect action from The Bank of England.
“One particular reason for more stimulus would be today’s government borrowing figures where falling tax receipts were partly to blame for the government having to borrow £14.4 billion, making this year’s borrowing target look unachievable without a significant turnaround in the economy. This will no doubt have George Osborne actively encouraging the Bank of England to do more to help the economy through using all available tools.”
