Currency News

Daily Exchange Rate Forecasts & Currency News

UK Borrowing Deficit Leaves GBP USD Exchange Rate Tight

September 21, 2017 - Written by Ben Hughes

Yesterday, the Pound saw a slight decline against the US Dollar, opening trading at 1.3519 and closing in the region of 1.3503.

This was triggered by a US Dollar-boosting announcement from the Federal Reserve.

Pound Flat against US Dollar as UK Drops into Borrowing Deficit



Today’s close Pound to US Dollar trading has come due to UK trader uncertainty about national debt.

The headline news has been that the previous UK borrowing surplus of 1.29bn has since dropped to a deficit of -5.09bn.

This was not an entirely surprising outcome, given that the prior surplus was only caused by a larger-than-normal level of tax receipts in July.

On the plus side, this was the lowest reported deficit for August since 2007. Additionally, the surplus seen in July was the first such since 2002.

A Treasury spokesperson gave a cautiously optimistic statement on the news, saying;

Advertisement
‘We have made substantial progress in reducing the deficit, whilst taking a balanced approach that allows us to invest in our infrastructure and public services.

This approach is working but the national debt is still too high, so we must continue to live within our means and start reducing our debt’.


This conflicts with a recent assessment that the UK could be on the way for some austerity easing, as predicted by John Hawksworth. As Chief Economist of PricewaterhouseCoopers, Hawksworth has predicted that;

‘Back in March, the OBR forecast that the budget deficit would rise to around £58 billion this year, but the latest data suggest that it may be similar to the £46 billion outturn for 2016/17.

This would imply a budget deficit of just over 2% of GDP this year, which is already close to the Chancellor’s medium term target for the deficit in 2020. All of this suggests that the Chancellor should have room for some easing of austerity in his Budget in November.

This could involve extra money for priorities such as the NHS, social care, housing and infrastructure investment as well as some further relaxation of the public sector pay cap’.


The UK has been under austerity conditions since they were implemented in the wake of the late 2000’s financial crisis. Any signs that austerity may actually be lifted could boost the Pound, as this would imply that the UK was finally speeding up on the long road to recovery.

US Dollar Aided by Hopes for December Fed Rate Hike



While the US Dollar is currently tight against the Pound, it previously rose due to Federal Reserve announcements.

At its September policy meeting, the US central bank indicated that a third interest rate hike in 2017 was still possible.

Additionally, Fed Chair Janet Yellen stated that the central bank was tipped to start tapering and unwinding its vast quantitative easing balance sheet.

This is comprised of the various bonds and assets purchased by the Fed to stimulate the economy, following the ‘great recession’. Yellen was confident that this was the right course to take, stating;

‘The basic message here is US economic performance has been good; the labour market has strengthened substantially.

The American people should feel the steps we have taken to normalise monetary policy are ones we feel are well justified, given the very substantial progress we have seen in the economy’.


While this has been good news for the US economy, it is worth remembering that the balance sheet is currently calculated to be around $4.5tn. Such a colossal amount of bonds will undoubtedly take years or even decades to sell off, given that a mass unwinding could dramatically unbalance the economy.

Pound to US Dollar Forecast: GBP Turbulence ahead on Brexit Speech



The Pound may face high turbulence in the near-term, when UK Prime Minister Theresa May speaks in Florence on Friday.

The PM’s eagerly-anticipated speech is expected to look at whether the UK should pay an EU ‘exit bill’ and how much this should be.

In the aftermath of the remarks, if the PM appears to have satisfied EU officials then the Pound could advance against the US Dollar.

The last US data of the week will be Friday’s PMI figures for September. Predictions have been mixed across the board, which means forecast-matching results could unsettle traders.
Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.


TAGS: Pound Dollar Forecasts

Comments are currrently disabled