Sterling / Euro

The pound enjoyed another positive run against the euro yesterday, climbing half a cent to briefly trade above 1.12 following encouraging UK borrowing figures.

• Sterling rose to a three-week high after UK public sector net borrowing came in lower than expected and as talk emerged of foreign interest in buying British firms.
• Public borrowing was the highest on record for a February at £12.4 billion, but below economists' forecast of £14.8 billion.
• Importantly, the figures indicated that the budget deficit for the year to April may come in below the government's bleak forecast of £178b, giving room for the ruling Labour Party to boost spending ahead of the election.
• Traders also cited that sterling got a boost from renewed M&A talk: Exxon Mobil expressed interest in British gas producer BG Group, whilst separately Deutsche Bahn confirmed it was in talks with Arriva over a possible takeover bid.
• The pound has reversed its gains this morning though after MPC member Andrew Sentence cautioned about the continued risks of a double-dip recession. Currently the pair is trading around 1.1150.

Sterling / US Dollar

Sterling slipped back half a percent against the dollar yesterday, with UK borrowing figures unable to provide a boost against the broadly stronger US currency.

• The pound briefly touched a session high of $1.5328, nearing a three-week peak of $1.5382 hit on Wednesday, before erasing gains on broad dollar buying.
• Despite the brighter February UK public borrowing figures it does not change the wider picture of UK debt and the efforts that are still needed to consolidate the budget deficit over the medium term.
• M&A talk gave the pound some support, preventing it from falling too sharply, with interest being expressed in both BG Group and Arriva.
• The US dollar got an added boost in the afternoon session after an index of business conditions in the Philadelphia district rose above expectations.
• Sterling has dipped below $1.52 this morning following some cautious comments from an MPC policymaker.

Euro / US Dollar

The single currency slid sharply in trading yesterday, dropping nearly a percent against the US dollar with Greece's problems resurfacing.

• Uncertainty over a resolution to Greece's debt problems heightened after a report saying the country was not optimistic about aid from eurozone members.
• An unidentified Greek official said Greece was increasingly pessimistic about the prospect for receiving assistance from the European Union and may seek aid from the International Monetary Fund.
• Although Greek Finance Minster George Papaconstantinou refuted the claim, it did little to ease negative euro sentiment.
• Germany in particular appears wary of making concrete promises, and analysts said that the report suggested a rift developing between Greece and Germany.
• Trading could be quiet today with no major announcements expected from either economy. Currently the pair is hovering above 1.36.

Rest of the World

Australian Dollar

It was a quiet day between this pair yesterday with movement relatively muted and the pound closing just 0.2% lower on the day.

• Despite some encouraging barrowing figures out of the UK, the pound was unable to advance against the higher-yielding Australian currency, with Britain's true fiscal problems still very much in focus.
• Some positive manufacturing data from the US boosted the appeal of riskier assets enabling the aussie to climb marginally higher.
• In trading this morning sterling has fallen quite sharply, dropping over a cent as cautious comments from an MPC policymaker stemmed demand for the UK currency.

New Zealand Dollar

Sterling resumed its downward movement against the kiwi yesterday, falling to a 10-day low with stronger global equities supporting risk appetite.

• Some encouraging figures from the US economy boosted the appeal of the riskier kiwi dollar, which has enjoyed a strong run recently as global conditions improve.
• The New Zealand currency has slowed its rate of gains this morning though with troubles in the eurozone stalling demand.
• Some weak local data this morning has also reinforced the slow and patchy nature of New Zealand's' economic recovery.
• With the pound down 0.2%, the pair is currently trading just below 2.13.