The first full day of US trading since President Trump’s inauguration saw the dollar lose ground across the board. As well as a roughly 0.5% gain on the US dollar, the pound made small gains on the euro. However, new UK borrowing figures this morning have knocked it back again.
The pound’s gains on Tuesday were in the face of employment data that showed UK unemployment rose to 4.4% in November. That is its highest since the end of the pandemic. However, supporting the pound, average earnings increased by 5.6%, a sharp increase since the previous month.
This all muddies the water ahead of the Bank of England’s interest rate decision in early February.
New borrowing figures released this morning brought sterling back down to earth. The UK government borrowed far more than expected last month. Office for National Statistics figures showed that borrowing was £17.8bn in December 2024, £10.1bn more than the previous year and considerably more than forecast by the Office for Budget Responsibility.
The dollar has also suffered early from the promises of politicians hitting the realities of ecomomics. On the campaign trail Donald Trump boasted of wide and immediate trade tariffs on allies and adversaries. When he chose not to follow through on these threats on his first day in office the dollar immediately weakened against the pound and euro. With international leaders at the World Economic Forum stating they will fight any trade war started by the US president, many currencies rallied against the dollar.
Christine Lagarde, president of the European Central Bank, will give a speech this afternoon that may lay out how the eurozone plans to respond to the threat of a trade war.
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