Sterling sinks to 13-month dollar low

| May 17, 2010 | 0 Comments

Britain’s ongoing deficit worries continue to weigh heavily on the economy and this was evident after the pound fell to a 13-month low against the dollar today.

Sterling fell as low as $1.4249 - its lowest level since March 2009, before recovering to $1.4435 - down 0.7% on the day.

Today, at his first press conference as chancellor, George Osborne said one of the new coalition Government’s top priority is to reduce the budget deficit – which is running close to 12% of GDP – similar to that of debt-ridden Greece.

Mr Osborne said he would deliver his first budget on 22 June and also announced plans to launch a new fiscal watchdog, called the independent Office for Budget Responsibility (OBR).

The OBR, which will be led by former Bank of England Monetary Policy Committee member, Alan Budd, is set to ensure the Government is held responsible for how it deals with the record budget deficit.

Meanwhile, analysts expect sterling to remain under selling pressure ahead of the budget, as risk aversion remains high.

Christian Lawrence, currency strategist at RBC comments: “The budget will be key. The main concern for the country at the moment is the size of the deficit, and that’s going to be the first full-blown explanation of what sort of belt-tightening measures we are going to see.

“At least until then, I would expect to see selling into any sterling rallies,” he added.

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