GBP Falls as UK Public Sector Borrowing Surges Beyond Expectations

The British Pound (GBP) has given back its earlier gains against the US Dollar (USD) on Tuesday, as data from the UK revealed that public sector borrowing increased beyond expectations in August.

The GBP/USD pair retreated to levels below 1.3370, from session highs at the 1.3390 area, although it remains contained within the last few days' range.

Figures released by the UK National Statistics Office showed a jump in net borrowing to £18.26 billion in August, from an upwardly revised £2.04 billion in July, well above the £15.70 billion forecast by market analysts.

The public sector borrowed about a fifth more compared to August last year, exceeding government income from taxes and other receipts, partly due to inflation stemming from the Middle East war.

ING analyst Francesco Pesole observes that the Pound has been drawing support from market expectations of some Bank of England tightening following last week's meeting, but notes it 'seems unlikely the BoE will match market expectations.' If this is the case, a 'large dovish repricing should still occur at some point,' according to Pesole.

The US Dollar remains buoyed after the hawkish turn performed by the Federal Reserve last week. The recent decline in Oil prices has given a fresh boost to risk appetite, but not enough to trigger any relevant USD reversal.