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Pound slumps to 21-month lows

Pound slumps to 21-month lows

Provisional data projected UK government borrowing to be higher than expected, the second-highest March deficit on record bringing the 2021/22 deficit to £151.8bn; 6.4% of GDP. The data will maintain UK economic concerns as debt interest payments will continue to increase and limit the government’s ability to lower taxes. The Pound suffered as sentiment towards the UK economy continued to deteriorate.

As risk appetite declined further, the Pound slumped to 21-month lows below 1.2600. The Euro strengthened to 1.1834 to the Pound despite weakness elsewhere but gradually lost ground against the Dollar amid an underlying lack of confidence in the Eurozone outlook and persistent dollar strength. 

The deterioration in market sentiment came amidst growing fears over China’s Covid outbreak, with investors fearing Beijing could be placed into lockdown following a spike in new cases. Markets fear China’s draconian Covid measures could undermine growth in the world’s second largest economy in addition to disrupting the global supply chain.

Concerns persist of a protracted conflict in Ukraine as well as an escalation as Germany reversed policy and agreed to send heavy weapons to Ukraine. Russia has decided to cut off the gas to Poland and Bulgaria after they refused to pay for gas in rubles. In the coming weeks other countries will face the same decision, pay in ruble or have their gas cut off. Polish Zloty fell 0.75% against the Pound yesterday bringing the year’s slump to 5.75%.

Sterling sentiment remained negative this morning and the Dollar continues to trade below 1.2600. With a sparse data calendar the focus will remain on the Dollar.

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