Sterling Traders Unconcerned by Growing UK Deficit
THE TAKEAWAY: UK public sector net borrowing rises 12.1 billion pounds in June -> Higher deficit neutralized by low yields -> Cable consolidates
United Kingdom public sector borrowed 12.1 billion pounds in June, exceeding expectations for 11.2 billion of net borrowing. May’s net borrowing was revised half a billion pounds higher to 16.1 billion pounds, the highest monthly borrowing amount since November 2010, according to the UK Office for National Statistics.
The UK public finances deficit for June was 3 billion pounds, lower than the expected 8.5 billion pounds of deficit. The climbing deficit raises doubts that the Chancellor of the Exchequer George Osborne will meet his yearly goal of cutting deficits by 120 billion pounds.
The statistics office said that the deficit was caused by a deterioration of public corporations. Prime Minister David Cameron has committed to eliminating structural deficit by 2017.
The usually currency negative higher deficit is moot in the face of low UK bond yields, as investors flock to UK bonds as a safe haven from the struggling Euro. Therefore, Sterling trading remained relatively unaffected by the news of higher deficit. GBPUSD has been consolidating around 1.5700 in today’s session, following yesterday’s volatile trading. Cable set a new monthly high yesterday, and resistance is likely to come in around the 1.5777 June high.
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