Pound Slides Amid BoE Rate Cut Speculation

The British pound weakened against other major currencies in the Asian session on Wednesday, as traders speculate a rate cut by the Bank of England (BoE) in February.

Recent data showed that the economy logged a slower-than-expected growth and inflation eased unexpectedly. Consequently, it is generally expected that the BoE would reduce the key interest rate by 25 basis points to 4.50 percent at its policy meeting on February 6.

Data from the Office for National Statistics showed that the U.K. budget deficit more than doubled in December from the last year as increases in spending were much larger than increases in receipts. Public sector net borrowing increased GBP 10.1 billion from the last year to GBP 17.8 billion in December.

This was the highest December borrowing for four years and also above GBP 14.6 billion forecast by the Office for Budget Responsibility.

At the same time, borrowing to fund day-to-day public sector activities rose by GBP 7.3 billion to GBP 10 billion, the highest deficit for December in two years.

Data showed that the interest payable on central government debt totaled GBP 8.3 billion in December. This was GBP 0.5 billion more than the GBP 7.8 billion forecast by the OBR.

Borrowing in the financial year to December was GBP 129.9 billion, which was GBP 8.9 billion more than at the same point in the last financial year.

In the European trading today, the pound fell to 0.8458 against the euro and 1.2312 against the U.S. dollar, from early highs of 0.8434 and 1.2354, respectively. If the pound extends its downtrend, it is likely to find support around 0.86 against the euro and 1.27 against the greenback.

Against the Swiss franc and the yen, the pound edged down to 1.1163 and 191.90 from an early 1-week highs of 1.1197 and 192.43, respectively. The pound may test support near 1.10 against the franc and 188.00 against the yen.

Looking ahead, U.S. MBA mortgage approvals data, Canada PPI data and raw material prices for December, U.S. Consumer Board's leading index for December and U.S. Redbook report are slated for release in the New York session.

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