By Claire West
Sterling crept up this afternoon against the dollar after Chancellor George Osborne unveiled controversial budget cuts in a bid to address the UK’s fiscal deficit. The pound rose to around $1.5743, ending the speech at $1.5728. It fell slightly against the euro, to 1.1355.
Sterling had fallen to a near-four month low against the dollar earlier today after Bank of England meeting minutes showed one MPC member had voted for further quantitative easing. High public borrowing figures also put the pound on the backfoot, as borrowing rose to £15.6 billion last month. Analysts had expected to see a fall to £14.2 billion.
Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments says, “The Coalition is gambling that the private sector will step in and plug the gap in the jobs market but there is no guarantee that this will be successful.
And whilst the MPC are talking about supporting the private sector with further quantitative easing, this so far does not have majority vote. Ultimately, if the private sector does not step forward to plug the gap in jobs; the UK will fall back into recession and sterling’s value will plummet.”
On market reaction, Bolsom commented, “Markets have been extremely volatile this morning as austerity fears sparked knee-jerk reactions from many businesses.
However in spite of their last minute concern, Osborne’s announcement is yet to fuel a market reaction and in fact, sterling gained against the dollar during his speech. This is fairly unsurprising, given that most of the bad news will have been priced in and it will take the markets a while to digest the sheer scale of the cuts.”
Bolsom concludes, “It is crucial now to sterling’s strength - and the Coalition’s credibility - that credit rating agencies endorse Osborne’s cuts.”