Pound Sterling Exchange Rate Forecast: GBP Improves Despite Public Sector Borrowing Data

September 21, 2016 - Written by Ben Hughes

STORY LINK Pound Sterling Exchange Rate Forecast: GBP Improves Despite Public Sector Borrowing Data

Pound Sterling Euro GBP EUR Exchange Rate Recovers from 1.15

Pound Sterling (currency : GBP) exchange rates have edged slightly higher during the first half of today’s trading session.

The Pound Sterling Euro (GBP EUR) exchange rate has hauled itself out of the 1.1500s where it loitered yesterday afternoon and is currently trading at 1.1654 GBP EUR, while the UK unit has spent a fair portion of the day back above the 1.3000 GBP USD threshold against the US Dollar.

UK Public Borrowing Data has little Impact on Pound Sterling (GBP) Exchange Rates

The shift back into Pound Sterling (GBP) exchange rates comes in spite of another worrying set of UK Public Borrowing data, published by the Office of National Statistics at 0930hrs BST. The numbers revealed that the British government spent a hefty £10.5 bn more than it received in incomes last month – a situation which has caused some analysts to express their concerns. In a research note published earlier, Pantheon Economics expanded on this point, noting that,

‘The 8.1pc year-over-year reduction in borrowing in August is much smaller than the 23pc fall the OBR expected to see for the full year. The disappointing trend reflected a bigger rise in current expenditure, 4.3pc, than expected for the whole year, 1.9pc.’

BoJ Rate Decision Triggers Risk On Trading, Benefits GBP EUR Exchange Rate

The recovery in the Pound Sterling to Euro (GBP EUR) exchange rate was also to do with the first of the week's three central bank interest rate decisions.

Elsewhere, the prevailing ‘risk-on’ trading environment of the early part of the week has continued into today’s session following last night’s Bank of Japan (BoJ) monetary policy announcement. Japan’s central bank has been pursuing an ultra-loose monetary policy for some years now, but its overnight announcement contained a pronounced change in tack which has pleased the markets.

Instead of cutting its headline interest rate further into negative territory, the BoJ revealed that it would now be targeting a zero per cent yield on its benchmark 10 year government bonds by making large-scale gilt purchases. The move helped banking shares in particular as it will allow them to maintain some semblance of profitability even if Japanese interest rates are cut in the future.

CMC markets were less than impressed with the latest twist in the Abenomics saga. A report from them issued after the announcement observed that,

‘Ultimately while these actions may well help the banks, it's doubtful they will to help the Japanese economy that much, and in some ways it shows how little flexibility the central bank has, given how experimental policy is now becoming. To sum up, this morning's actions by the central bank are not so much an easing as a tinkering around the edges of a failing policy.’

FOMC Interest Rate Decision Likely to Impact Pound Sterling (GBP), Euro (EUR) and US Dollar (USD) Exchange Rate Trading

Nonetheless, stock markets are up ahead of this month’s main event – the latest US Federal Reserve monetary policy decision, due at 1900hrs BST tonight.

The decision is liable to have a significant impact on not only the US Dollar (USD) but also Pound Sterling (GBP) and the Euro (EUR).

Dovish remarks from the Fed would send GBP USD higher but could see the GBP EUR exchange rate hit new lows as the common currency is boosted by 'Greenback' weakness.

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