On Thursday, the British pound declined to a low of two weeks against the euro, after the single currency rose because of a larger-than-expected rate hike from the European Central Bank. Meanwhile, the British economy’s woes were heightened because of the public borrowing figures.
Soaring inflation in Britain resulted in an increase in debt costs, as they hit twice their peak in the last month, thereby increasing the budget deficit for the month of June. Data showed that the deficit had reached its highest value after April 2021.
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Market analysts said that the latest borrowing numbers of the public sector had caused the pound to decline. They added that the continuous increase in the inflation numbers, combined with the ambivalence of the Bank of England towards it has not been helped the currency at all.
However, the figure would definitely be a major concern for the candidates who are vying to become the Prime Minister of Britain in place of Boris Johnson. There were two candidates left in the race on Wednesday, with foreign secretary Liz Truss and former finance minister Rishi Sunak reaching the last round. The two candidates are ready to compete over the summer for getting the votes from the other lawmakers of the Conservative party.
Elsewhere, traders of the British currency were also monitoring the developments in Rome and Frankfurt, where the euro rose against the pound because the bigger-than-expected rate increase from the European Central Bank outweighed the turmoil associated with the resignation of Prime Minister Draghi in Italy.
According to some analysts, the price action seen in the Sterling was being affected by the general risk appetite of the market and the events taking place in different parts of Europe. They said that the price action seen in the British pound seemed to be the work of a broader risk environment, which is currently being influenced by the events occurring in Europe.
The pound’s fall
The British currency recorded a drop of as much as 1% against the euro, which pulled it down to a low of two weeks at 85.85 pence before it managed to trim some of its losses. There was a 0.4% loss in the pound by 1450 GMT against the euro and had reached 85.35 pence.
There was a 0.3% drop in the Sterling against the US dollar as well, which brought it to $1.1947. However, it should be noted that the pound still managed to remain above the low of 28 months that it had reached in the previous week.
The pound is likely going to continue seesawing until a candidate is finalized as the British prime minister, as this will also decide what kind of policy changes could be expected. Meanwhile, the Bank of England is also scheduled to have its meeting on August 4th and its stance on the interest rate hike will also determine the direction the pound will take down the road. The US Fed will also announce its own hike in the next week.
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