The important news yesterday was an announcement by the Treasury that UK public sector borrowing in November ballooned above expectations. The Coalition Government borrowed £23.3 billion in November compared to £17.4 billion in November last year in departments including Health and Defence.
This has raised concerns that the Coalition Government is seriously off-course to meet its spending reduction plans, and this morning the GBPEUR exchange rate has dropped to 1.1760.
In the EMU meanwhile this morning the markets are concerned that Portugal faces a credit rating reduction from Moody’s. This doesn’t reflect the solvency of the Portuguese Government but concerns that the Government’s austerity budget could seriously affect growth in 2011.
Echoing this sentiment, this morning respected economist at Citigroup Willem Buiter has commented saying that the ECB-IMF rescue loans can only perpetuate the EMU debt crisis. This is because the interest repayments are too high to allow the indebted nations to return to economic health.
In short the outlook for the euro in 2011 does not look positive at present.
In upcoming news the minutes from the Bank of England meeting this month are released this morning. These could reflect concerns that the Bank is taking inadequate steps to deal with soaring UK inflation, and might also negatively affect sterling.
In the US meanwhile there are several announcements today including the GDP index for Q3 and Home Sales data. These provide insight into the state of the US economic recovery, and depending on the figures could boost the dollar.
by Peter Lavelle with foreign currency exchange specialist Pure FX.