LONDON: Sterling eased from two week highs against the dollar on Wednesday after dovish minutes from the Bank of England's last policy meeting, while Chancellor George Osborne's 2012 Budget was perceived as largely neutral for the currency.
Osborne was seen to be sticking with the coalition government's austerity drive which aims to bring the country's finances back into line in five years, though sluggish growth hampered by fiscal cuts remains a concern to investors.
The earlier release of much higher-than-expected public sector borrowing for February had already acted as a drag on the pound.
It was down slightly for the day against the dollar at $1.5827 in afternoon trade, little changed from pre-Budget levels.
"The coalition has been relatively successful in meeting its fiscal targets although there were worrying signs in this morning's February data from a revenue perspective," said Lee Hardman, currency strategist at BTM-UFJ.
"It's not really a surprise that sterling hasn't reacted on the budget though as it's fairly neutral fiscally," said Lee Hardman, currency strategist at BTM-UFJ.
The Office for Budget Responsibility's forecasts for growth and borrowing detailed by Osborne were marginally more optimistic than the previous estimates in November but analysts were sceptical.
"We continue to think that the OBR's growth forecasts look optimistic and that the government will soon start finding it rather harder to bring down borrowing. For now, though, the UK's safe-haven status looks secure." said Vicky Redwood, economist at Capital Economics.
Any future deterioration in the borrowing figures could persuade ratings agencies Fitch and Moody's to carry out their threat to downgrade the UK's prized AAA sovereign debt status, a potential source of weakness for the UK currency.
BoE MINUTES
The pound had retreated from two-week highs in morning trade of $1.5924 the BoE's latest policy minutes from their March meeting showed two policymakers voted for more monetary stimulus to support the economy.
Most in the market had expected a unanimous vote for asset purchases to be left on hold following the February decision to increase the scheme by 50 billion pounds to 325 billion.
Recent data has pointed to a recovery and inflation has proven to be far stickier than the BOE estimates.
But policymakers Adam Posen and David Miles again urged raising the asset purchase target to 350 billion pounds.
"At the margin the Minutes are a dovish surprise but that's counterbalanced by increased concerns over upside risks to inflation," said Hardman.
The MPC highlighted increased concern about high oil prices and future wage inflation, a view already voiced by the Bank's chief economist Spence Dale on Tuesday.
Traders said sterling would need to overcome the Feb. 29 high of $1.5993 and a large option barrier in place at $1.6000 to open up fresh topside potential. Bids were reported into $1.5800 with stop-loss sell orders below.
The euro hit a session high of 83.72 pence after the minutes before paring gains to trade flat at 83.35 pence. The common currency had fallen to a one-month low of 82.83 pence on Monday.
Comments
Comments are closed.