British Pound Under Pressure as Net Borrowing Rises to Record 22.8 Billion Pounds

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Fundamental Headlines

• Moody’s Warn’s It May Cut Portugal’s Rating – Wall Street Journal

• China Support EU Measures – Wall Street Journal

• Risk Rally Resumes as Korea Tensions Ease – Financial Times

• Spain Sells 3.88 Billion Euros of Bills as Borrowing Costs Jump – Bloomberg

• Stocks, Euro, Commodities Gain as Korea Tensions Ease – Bloomberg

GBPUSD: Public sector net borrowing in the U.K. rose to 22.8 billion pounds in November from a revised 8.6 billion pounds in October amid economists’ forecasts of 16.8 billion pounds. At the same time, public finances (PSNCR) rose to its highest level since September. Today’s budget gap marks the highest reading on record and does not bode well for the region going forward as the government plans to implement the most violent spending cuts since WWII. This report is of great concern heading into tomorrow’s Bank of England minutes as currency traders have been faced with a three way split as of late. Indeed, Andrew Sentance has been calling for a rate hike of twenty five basis points as inflation remains at its elevated levels, while Adam Posen has been voting for an increase in asset purchases as employment and growth remains subdued. With the recent inflation report rising to its highest level since April, while the economy faces increases headwinds, tomorrow’s BoE minutes will likely dictate price action heading into 2011. Taking a look at price action, the GBPUSD extended its three day decline and now looks poised to test the 200-day moving average for support in the near term as technical and fundamental developments as of late continue to point to losses in the cross.