USD/GBP Rate & Comments for 18th May 2010

USD/GBP - 1.450

The pound suffered yesterday as concerns over the UK’s escalating deficit saw sterling hit a 13 month low of $1.4250/ £1 against the US dollar and slip against the euro. With many investors shying away from highly indebted countries, many analysts expect the downward trend against the US dollar to continue. With no real data released today, the big news was the announcement by the Chancellor George Osborne that the government will create a new independent watchdog to monitor the budget and economic forecasting. In a move similar to Labour’s creation of an independent interest rate setting body early into their first term in 1997, the new Chancellor is looking to ensure that he and his new government are held to account on cutting the deficit. He also announced that the first budget would be announced on June 22nd. With the government committed to delivering £6bn worth of spending cuts in the next year, the markets will be waiting to see exactly where the cuts will come from. Whilst the City is keen on the tough stance on spending, there are concerns that an overly aggressive round of cuts will stifle the UK’s fragile growth. With poor house price figures out yesterday morning, the Chancellor has a lot to prove. Inflation data out later today could cause some movement and many expect the pound to suffer in the run up to the budget. Call in now for a live exchange rate.

In the US, despite a strong week for industrial data last week, the ‘Empire’ manufacturing index came in a lot worse than expected fuelling expectations that the US recovery may not be as strong as many thought. The US dollar is experiencing a lot of strength related to negative sentiment – both towards the euro zone and the UK as growth prospects fall. Out later today we have building permit data giving an idea as to the state of the housing market and also purchasing data. Get in touch now to ensure you don’t miss out.

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