Pound euro exchange rate rangebound as UK borrowing figures disappoint
The pound euro (GBP/EUR) exchange rate is trading sideways this morning as markets digest the UK’s latest borrowing figures.
At the time of writing the pound euro exchange rate is trading at around €1.1714. Virtually unchanged from this morning’s opening rate.
Pound (GBP) muted as UK borrowing figures pose challenge to Reeves’s Budget
The pound (GBP) is struggling to attract support this morning, following the publication of the UK’s latest public sector borrowing figures.
According to data published by the Office for National Statistics, the UK government borrowed £3.1bn in July. Twice as much as the £1.5bn that had been forecast.
This is sapping Sterling sentiment amid concerns over how it will impact Chancellor Rachel Reeves’s looming budget.
GBP investors fear the state of the UK’s public finances will force Reeves to raise taxes and cut spending.
Cara Pacitti, senior economist at the Resolution Foundation, comments:
‘With borrowing £3 billion higher-than-expected in July, the deteriorating state of the public finances illustrate the challenges that Rachel Reeves will face ahead of her first Budget this Autumn.
‘The fiscal inheritance facing the Chancellor is one of rising taxes, increasing spending challenges, and very little wriggle room in the event of bad economic news. This combines to create a challenging backdrop for the new Government to realise its ambitions of boosting growth while putting the public finances on a sustainable path.’
Elsewhere, a mixed market mood is also limiting the pound’s upside potential this morning.
Euro (EUR) undermined by modest US dollar recovery
The euro (EUR) is also struggling this morning. The single currency being dented by its negative correlation with the US dollar (USD) as the latter rebounds from its recent lows.
An extended USD selloff has helped to underpin the euro in recent days. However, markets appear to have turned cautious in advance of the Federal Reserve’s annual Jackson Hole symposium.
The euro also appears to have run afoul of fresh European Central Bank (ECB) interest rate cut speculation. EUR investors are growing increasingly confident the bank will cut rates again when it next meets in September.
Pound euro Exchange Rate Forecast: UK and Eurozone PMIs in focus
Looking ahead, it’s likely that the latest PMI figures from both the UK and Eurozone will act as the primary catalysts of movement for the pound euro (GBP/EUR) exchange rate in the second half of the week.
GBP investors will no doubt focus their attention on the UK’s services PMI. August’s preliminary figures are expected to report a modest acceleration of growth in the UK’s vital services sector, potentially lifting the pound.
In contrast, the euro may fall as the Eurozone’s PMI figures are forecast to report the bloc’s private sector came even closer to stalling this month.
EUR exchange rates may also be influenced tomorrow by the publication of the minutes from the ECB’s latest policy meeting.
In July’s policy statement the ECB indicated a September interest rate cut may be possible. If this is reinforced by the minutes its likely to pile more pressure on the euro.