Sterling held firm against the dollar on Tuesday, with most of the bearish news from finance minister George Osborne's autumn statement already factored in, and month-end rebalancing flows into the UK offering support. The British currency touched a one-week high of $1.5658 before Osborne addressed parliament and the Office for Budget Responsibility unveiled its new, much lower growth forecasts, and was last up 0.8 percent on the day at $1.5625.
"Most of the bad news was already out and that's part of the reason why cable is at $1.56 and not $1.55," said Simon Derrick, head of currency research at Bank of New York Mellon. The OBR now expects the economy to grow only 0.7 percent next year, much less than its March forecast of 2.5 percent, before recovering to 2.1 percent in 2013. Osborne said slower than expected growth meant it would take longer to wipe out Britain's budget deficit, meaning tough austerity measures will extend beyond the next election in 2015. That is likely to underpin the country's triple-A rating and encourage more flows into safe-haven UK gilts.
Sterling also gained on a trade-weighted basis. It rose 0.5 percent to 80.4, not far from its recent eight month high of 81.00. But the index is likely to trade in a range as the crisis in the euro area affects the UK currency through two opposing channels - rising risk aversion that hurts all European currencies versus the US dollar, and the increased safe-haven status of the UK within Europe. Reflecting those concerns, the euro has fallen against the pound from a high of 90.84 pence in early July to trade at 85.93 pence on Tuesday, down 0.6 percent on the day.
Comments
Comments are closed for this article.