24/07/2017 - UK's Public Sector Borrowing Increases To £6.85 Billion

GBP

Sterling marginally recovered losses against USD on Friday despite the release of the UK's public sector net borrowing figure rising. The figure showed that government borrowing in June increased to £6.85 billion, up from £6.71 billion in May. Analysts had originally expected borrowing to fall to £4.8 billion.

Although Thursday’s data showed a 0.6% increase in the rate of consumer spending for June, this provided little support to the pound. The poor figures seen in May and April mean that retail sales for Q2 as a whole were disappointing and only just offset the slump seen in the first quarter.

Gains in sterling were also limited by the latest developments in the Brexit process with speculation that the UK could harden its stance in negotiations.

UK International Trade secretary indicated to the press on Thursday that the UK wants to leave the EU with a deal but that it could also survive without one in place which has heighted concerns amongst investors that the nation could leave the bloc with no trade deal.

USD

The dollar slumped to a thirteen-month low against a range of major currencies on Friday amid a fresh wave of political uncertainty after newly published reports revealed that president Trump’s private business is also set to come under scrutiny.

Special counsel Robert Mueller is currently looking into the business dealings of the president aswell major Republican associates and is now set to expand investigations into allegations that Russia influenced the 2016 US presidential election.

The reports follow from developments earlier in the week after Republican lawmakers intercepted efforts to repeal and replace Obamacare, dealing a major policy blow to the Trump administration.

The news has deepened the bearish sentiment surrounding the dollar as investors fretted over how the investigations would sidetrack the implementation of the fiscal reforms proposed by the US president.

USD also continues to feel the effects of the recent spate of poor economic data which has dampened expectations of another hike in interest rates by the Fed later this year.

Although the markets have now priced the possibility of a rate hike below 50%, last month’s forecasts from FOMC participants still show scope for one further interest rate rise later this year, followed by another three in 2018.

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