Daily Brief

Paying back the overdraft

UK government borrowing halves

The UK government new borrowing requirements more than halved (during 2021-22) from the previous year, as the economy rebounded from that first difficult year of COVID. In that year, government borrowing was at a record, eye-watering £317.6bn. So, last years initial estimates of around £151.8bn reflect a healthy improvement, but are somewhat worse than the previous office for Budget Responsibly (OBR) estimate of around £128.8bn, released in March. However, the number-crunching department tell us that with strong tax receipts forthcoming, the initial estimated (£151.8bn) figure for 21-22 should improve significantly, and may bring the borrowing back down toward the OBR’s initial March estimated figures.


Sunak to offer more help?

This could be good news for the chancellor, and perhaps even better news for the public, as Rishi Sunak could still have some wiggle room left to get the chequebook out and deliver some much-needed relief down the road. Despite this, and in a statement released after the publication, Sunak appeared to pour cold water on this notion, preferring to highlight the support he had already offered. Perhaps he did this after having one eye on the monthly borrowing this March, which at £18.1bn, was the second highest month on record, or even the government’s debt interest payments, which reached an overdraft-busting £70bn last year.


No more MOT’s?

In fairness, the government have been discussing (behind closed doors) ways of looking to help combat the huge rise on the cost of living. Leaked details of the ongoing discussion suggest that they have considered measures including scrapping the annual MOT requirements for cars, as well as other measures that could help mitigate childcare costs.


Still no joy for the pound

The pound took no positivity from the UK government data, and GBP/USD slipped for a fourth straight day. Those dominant factors of diminishing BoE rate hike hopes, and a bullish Fed, coupled with a broader risk-off mood in markets, combined to help drive GBP/USD below 1.2700, and almost touching 1.2550, as the pair went looking for a new yearly low. GBP/EUR slipped back under 1.1900, but the move lower was far more contained once again, and has settled around 1.1850 for now.


Kazaks still likes July

The ECB’s first, much anticipated, interest rate hike in more than a decade could finally come in July, according to policymaker, Martins Kazaks. Admittedly, he said the same thing last week, but he did go on to say that ‘two to three rates hikes priced by markets are quite reasonable’. So, the message from the ECB looks to be homing in on a July move, and then another again in September. EUR/USD took no comfort from the news, as the greenback dominated proceedings here once again. EUR/USD slipped back under 1.0630, briefly breaking below the March 2020 low.


Durable Goods, not bad

The latest U.S Durable Goods Orders for March jumped by 0.8%, just missing estimates of 1%. Break the report down, and the numbers looked healthy enough. The news certainly didn’t rain on the dollar’s parade, and the dollar index (DXY) moved up to 101.80. Bucking the trend (again) has been USD/JPY, which slipped back toward 127.00, representing a one-week low. Whilst there is an element of risk-aversion driving the pullback (JPY strength), a better explanation might be markets squaring long USD exposures ahead of tomorrow’s key BoJ policy decision.


Australian Inflation surges

The latest Australian inflation figures, released overnight, showed that the quarterly Consumer Price Index had risen to 2.1%, much higher than the market expectation at around 1.7%, and marking a 20 year high in the process. The single biggest increase came from fuel prices, which moved up 35% throughout the past year. Responding to the numbers, Australian Treasurer, Josh Frydenberg, said that Australia was ‘not immune to international pressures driving-up inflation’. The news gave AUD/USD a boost as markets considers whether the RBA might be forced to hike rates before next month’s election, with the pair moving sharply back up towards 0.7200 overnight.


What else is happening today?

ECB President, Christine Lagarde, is speaking (twice) later today, as well as the BoC’s Macklem and Rogers. Markets will be eyeing Lagarde’s comments in particular. On the data front, the latest US Pending Home Sales (Mar) are set for publication. The latest Japanese Industrial Production and Retail Trade data is out just before midnight.


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