GBP USD Exchange Rate Slides as Public Borrowing Skyrockets

December 21, 2016 - Written by Toni Johnson

STORY LINK GBP USD Exchange Rate Slides as Public Borrowing Skyrockets

The GBP USD exchange rate continued to slide today as the latest figures for Public Sector Borrowing accelerated faster than expected.

Pound US Dollar (GBP USD) Falls as Borrowing Rises

The Pound US Dollar (GBP USD) exchange rate fell this morning following the release of the public borrowing report showing that the UK government was forced to borrow £12.21bn in order to balance the books in November. This is a significant rise from £4.32bn the month before and is even worse than the previous forecast that it would rise to £11.3bn.

The surge in borrowing also caused the UK’s national debt to reach an all-time high of £1.655 trillion, equal to 84.5% of Britain’s GDP, although it was not all doom and gloom as borrowing actually fell 4.4% from the same point last year, and looks on track to meet Chancellor Philip Hammond’s revised deficit targets. As Howard Archer of IHS Global Insight explained;

‘Reassuring news for the Chancellor as the public finances saw modest improvement in November compared to a year earlier – thereby keeping the government on track to meet – or even slightly undershoot - its upwardly revised target for 2016/17 contained in November’s Autumn Statement.’

The Office for Budget Responsibility (OBR) however, expects the government to borrow £122bn more than planned in the next five years as it faces the challenges of leaving the EU, which may force Hammond to alter the goalposts once again.

Hawkish Fed Continues Bolstering US Dollar

The US Dollar continues strengthening nearly a week after the Federal Reserve announced that it would be raising US interest rates as its hawkish predictions for next year continue to boost investor confidence in the ‘Greenback’.

Fed Chair Janet Yellen expects that interest rates are likely to accelerate at a faster pace in 2017 as she forecast that there could be up to three rate hikes next year if the US economy continues improving.

However, some investors are likely to remember a similar stance from the Fed last December as it forecast multiple rate hikes in 2016, of which only one came to fruition, which may prevent USD from rising much further.

GBP USD Exchange Rate Forecast: US Home Sales Data May Drag on US Dollar

The GBP USD exchange rate may be able to mount a recovery later this afternoon following the release of the US’s latest Home Sales data, which is expected to report that sales fell from 2.0% to -1.8% in November.

Meanwhile, the Pound may struggle to advance tomorrow as the GfK Consumer Survey is expected to hold at -8 in December as 'Brexit' uncertainty weighs on UK sentiment, while a slew of US data could propel the US Dollar higher.

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