The pound is trading just under the $1.57 mark after the UK announced a public sector net borrowing deficit of £1.6 billion in July, compared with a surplus of £10.5 billion in June. Traders welcomed the news as economists were expecting a deficit of £3.7 billion. The report essentially means that the UK government needed to borrow money in July to cover its expenditure. Dealers had expected a budget deficit and that is why the pound held its value against the US dollar.
The US Federal Reserve will release its latest set of minutes at 7pm (London time). In May, Federal Reserve chairman Ben Bernanke claimed the bond-buying programme might be reduced as early as September. The Fed’s stimulus package prints more US dollars, so if the Fed does look to trim its bond-buying scheme traders may sell the pound and buy the dollar.
The pound has rallied 4% against the dollar since the beginning of July, so traders could close out long positions ahead of the Fed minutes tonight.