US$/GBP - 1.540

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Sterling suffered yesterday after the UK’s public finances showed a shortfall in the month of January for the first time since 1993. The pound fell to $1.5554/ £1 – barely avoiding the $1.5533/ £1 nine month low that was hit earlier in the month. However, overnight the Federal Reserve raised the ‘discount interest rate’ – the rate at which banks borrow from the central bank in a clear statement of intent to raise headline rates. This has seen us hit $1.5383/ £1 already this morning. January is traditionally a month when tax receipts far outweigh the money spent by the Government and this month saw the first time in 17 years that the Government spent more in a month than came in. The market expected a surplus of £2.8bn, so when a £4.3bn overspend was announced, a sell off of sterling ensued. With income tax receipts down by 16% on the year before, there are serious questions being asked of the UK economy and the state of the country’s public finances. The UK needs a credible plan to reduce government borrowing and stimulate growth at the same time. Last years emergency funding has done very little to stimulate growth and now the next step seems to be tax hikes. The lack of direction and lack of clear growth and recovery is likely to continue to push sterling lower – especially against the US dollar.

There is retail data out today for the UK, so get in touch to avoid the adverse impact of this negative sentiment on any payments you have to make.

In the Euro zone, the euro also tracked close to a 9 month low against the US dollar, as news emerged that Greece was being investigated by European Union officials after allegations that the country concealed the true deficit figures using complex derivatives prior to joining the euro. Angela Merkel accused Greece of “falsifying its statistics for years”. A withdrawal from the euro has to be considered as a viable option as Germany has essentially refused point-blank to fund any bailout of the country. There was little data out yesterday and there is a similar lack of economic figures out today. Expect the euro to trade on sentiment alone, which given yesterday’s performance could see it drop.

If you are moving euros into US dollars get in touch now, as with current market movements, it could continue to get much worse.

In the USA, the US dollar strengthened against 12 of 16 major currencies. Price movement was driven by a very positive ‘earnings season’ for companies trading on the S & P 500. Of 350 companies that have released forth quarter earnings figures, more than 75% have exceeded analysts’ estimates leading to a boost in demand for US dollars as the economic recovery gathers pace in real terms. In addition, the Fed’s move to raise the discount rate of interest has sent out a clear signal that the Fed is looking to return to normal monetary policy. Data was fairly mixed yesterday though as unemployment data showed an unexpected jump in the number of new claimants – however this was overlooked by the market and attributed to seasonal workers from the festive period looking for employment again. US inflation data is released today which will be watched closely. Expect the US dollar to continue its rally against sterling and euro – get in touch now if you have US dollar payments in the short term, especially if you have US dollars to move into sterling.

Call 0808 163 0102 or +44 (0) 207 898 0541 from outside the UKor fill out our quote form: http://www.smartcurrencyexchange.com/quote.aspx