Pound Sterling Exchange Rates Fell Again Yesterday

The pound fell again yesterday against almost all of the 16 most actively traded currencies in the market as ongoing fears about the state and outlook for the UK economy weighed heavily on the currency.

Data from the Confederation of British Industry (CBI) published yesterday showed that the UK may have to borrow about £75 billion more next year than it had originally planned as growth continues to falter. In its latest economic forecast, the CBI warned that borrowing in 2014 would reach £112.5 billion, £10 billion more than in its November outlook. By comparison, the Treasury predicted in November 2010 that borrowing would have fallen to just £35 billion in the year to March 2015. Taken together, borrowing for 2012, 2013 and 2014 will be £21 billion more than the CBI predicted just three months ago. The increase is largely due to weaker growth in the economy which is hitting government tax receipts.

Meanwhile, Office for National Statistics (ONS) reported yesterday that the UK consumer prices index (CPI) in January by 2.7% for the fourth month in a row.

Analysts commented that “As is likely to become evident in tomorrow’s Inflation Report, the monetary policy committee (MPC) is caught between a rock and a hard place. Inflation has been above target for most of the last seven years, and may soon jump back into letter-writing territory. Although the MPC views weaker sterling as necessary if the economy is to rebalance, its first consequence is likely to be stronger inflation, and today’s data show the first signs of this emergent headache. We now forecast CPI inflation of 2.7% in 2013, compared with 2.8% previously, while our forecast for 2014 is 0.2pp lower at 2.4%. We now expect CPI inflation to dip slightly to 2.6% in February, but thereafter see a mini-surge building, with inflation rising to 3.3% in June before subsiding gradually.”

In contrast, the stronger start to the year made by the euro zone economies, which has seen the euro reach 15 month high’s against both the pound and the dollar received a further boost yesterday after credit ratings agency Standard & Poor’s changed its outlook on Ireland from 'negative' to 'stable' citing an improvement in the Irish government’s debt maturity profile.

Overnight, second term US President Barack Obama gave his ‘State of the Union’ address highlighting a host of issues ranging from gun control to immigration to climate control that will form centre stage in his second and last term in office.

Obama also pushed for measures to aid the middle class and called on opposition Republicans to back his proposals in order to boost the US economy.

Obama outlined suggestions such as raising the federal minimum wage to $9 an hour by the end of 2015, and a $50 billion increase in infrastructure spending and agreements to promote cleaner energy and improved manufacturing.