Sterling performed well against most of the majors last Friday thanks to some sanguine public sector borrowing data. The latest report showed that government borrowing dropped to its lowest level for seven years during May as income tax receipts bolstered the coffers. At £10.1 billion, net borrowing was down -18.3% over the year, whilst income tax was up +5.3% at £10.8 billion.
The sturdy data helped boost the appeal of the Pound at the end of a very strong week for the UK currency. Last week Sterling appreciated by 170 pips against the Euro, 300 pips against the US Dollar, 320 pips against the Canadian Dollar, 380 pips against the Australian Dollar and 700 pips against the New Zealand Dollar.
The Pound to Euro exchange rate rose to a new three-week high last Friday but the single currency was spared any steep losses because investors were cheered by the European Central Bank’s decision to inject a further bout of liquidity into Greece’s embattled banking system.
It was reported that Athens submitted a new proposal to its creditors over the weekend but it is unlikely that a deal will be brokered over the next 24 hours. A crisis meeting is due to be held this evening but, given the recent deterioration in relations, leaders do not appear to be getting their hopes up. Indeed, German finance minister Wolfgang Schauble commented ‘We have to wait and see whether something happens…But I’m not sure I’ll be able to announce anything sensational or new’.
Any positive developments could set off a massive surge in demand for the single currency, but another breakdown in communication could drive the Euro even lower against the Pound.
The Pound to US Dollar exchange rate touched a fresh seven-month high on Friday morning as bullish Sterling traders pushed the rejuvenated Pound higher against the ‘Greenback’.
Following the Federal Reserve’s latest statement on interest rates markets remained cautious of putting undue faith in the Fed’s perceived desire to start normalising monetary policy in 2015. Previous remarks from the US central bank had suggested that rates would rise in September of this year but it now looks more likely that policymakers will remain on the sidelines until December. However, cautionary comments regarding the potential impact of a Greek exit on financial markets mean that some investors don’t foresee a Fed rate hike until after the New Year. This subduing of expectations has negatively impacted the US Dollar.