Sterling hit a three-month low against the dollar on Tuesday as data showed record-high UK public borrowing that called into question whether the government can meet its deficit-cutting target. Also citing recent weaker UK economic data, analysts said investors were concerned that the recovery may falter in the first quarter, pushing down government revenues.
Public sector net borrowing, which smoothes out some of the monthly volatility in government revenue and spending, came in at a record 22.774 billion pounds in November, up from 16.7 billion a year ago and well above forecasts for it to hold steady at around 17 billion. "Sterling slipped after the public sector finances data and there is no question that this was the catalyst for the current sell-off," said Steve Barrow, currency strategist at Standard Bank.
Sterling fell to $1.5453, its lowest since mid-September, a notch below last week's low of $1.5454. By 1605 GMT, it was down 0.2 percent at $1.5470. Losses accelerated as stop loss orders were triggered on the break below $1.5500. The UK Treasury said it remained on track to eliminate the budget deficit over the next four years, but the figures showed borrowing driven higher by health, defence and EU spending as well as the weakest revenue growth in almost a year.
"The depressing part of this report is that it shows an all-round deterioration ... Perhaps some scepticism whether the (government's austerity) plan will be achieved as it has been set out is now warranted," said Marc Ostwald, strategist at Monument Securities.
Sterling fell to its lowest in more than 25 years against the Australian dollar at A$1.5495. It also hit a multi-year low versus the Swiss franc of 1.4813 francs, with traders citing system-related selling. The public finance data added to recent pressure on sterling. A weak British consumer confidence survey earlier followed poor UK jobs data last week and highlighted risks of the economy taking a turn for the worse once austerity measures kick in next year.
The euro rose 0.3 percent to 84.88 pence, moving above its 100-day moving average at 84.85 pence and putting the 200-day average around 85.09 pence in sight. A close above here could help the euro gain further, possibly enabling it to re-test last week's one-month high at 85.53 pence.
Trade-weighted sterling matched a 7-week low of 80.1. Analysts said sterling's falls against the euro may be limited as worries the eurozone debt crisis could continue well into 2011 keep the shared currency under selling pressure, but UK-specific concerns will cause it to weaken against other currencies.