Transfer GBP Update: Pound Sterling Weakens Against Majors

The pound continues to weaken against the majority of the 16 most actively traded currencies in the market after the publication of worse than expected UK public sector borrowing figures which further increases speculation that the UK could lose its coveted AAA credit rating.

The Office for National Statistics reported government borrowing figures that were higher than expected in December and on the year to date. Public sector net borrowing totalled £15.4 billion in December compared with forecasts of £15.2 billion by analysts. The figure was £0.6 billion higher net borrowing than in December 2011. In the financial year to date, public sector net borrowing totalled £106.5 billion, £7.2 billion higher than at the same time last year.

Dr Howard Archer, Chief UK Economist at IHS Global Insight said “The recent poor public finance data are fuelling high and mounting expectations that at least one of the credit rating agencies will strip the UK of its AAA rating within the next few months".

Meanwhile, the data out of the euro zone continues to show they area maybe entering a more stable period than the last few fraught years with the publication of the latest ZEW Indicator of Economic Sentiment for Germany showing an increase by 24.6 points in January to 31.5 points, thereby reaching its highest level since May 2010. This beat the consensus estimate which forecast only a 5.1 point increase to 12. Financial market experts believe that the economic perspectives for Germany have brightened up on a six-months’-time horizon.

With regard to the euro zone, economic expectations also improved significantly in January with the corresponding indicator rising by 23.6 points to 31.2 points. Furthermore, the indicator for the current economic situation in the region “improved slightly”. It now stands at minus 75.3 points (up 4.6 points compared to the previous month).

Meanwhile in Spain, its Treasury raised €2.8 billion with the sale of three- and six-month bills yesterday, topping its target of €2.5 billion.

Elsewhere, the Canadian dollar continues to benefit from a rise in oil prices with crude oil futures now touching their highest level since September 2012.

Analysts speculated that the gains were fuelled by hopes of an increase in demand after the International Energy Agency lifted its global oil demand forecast this year by 900,000 barrels a day, citing rising demand from China.

In Japan, the two day central bank meeting ended with the announcement from the Bank of Japan that it has set a 2.0% inflation target and pledged to embark on an unlimited asset purchase programme similar to the Federal Reserve. The BoJ also kept its benchmark rate unchanged at a range of zero to 0.1%. However, the unlimited asset repurchase programme will not come into force until January 2014 which disappointed some analysts.

In the US, housing data was unexpectedly downbeat with the National Association of Realtors reporting that sales of existing homes fell by 1% in December to a seasonally adjusted annual rate of 4.94 million units.