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The pound rises on a quiet start to the trading week

Published: 15 Oct at 4 PM Tags: Pound Sterling, Dollar Exchange Rate, Forex, UK, Economy,

The pound picked up a small fraction of the ground lost over the course of last week in a quiet start to the trading week as the markets remain cautious ahead of the US debt ceiling deadline of 17 October.

In the only significant piece of UK economic data, the Ernst & Young ITEM club reported that they are making an upward revision of their forecast for UK GDP but warned that the economic recovery risks running out of steam. Of interest in view of the Bank of England new ‘forward guidance’ policy, they also forecast that UK unemployment will only fall to 7% by mid-2015.

In its latest quarterly forecast, the ITEM club upwardly revised its forecasts for UK economic growth for 2013, 2014 and 2015.

The ITEM club are now forecasting that the UK economy will grow by 1.4% this year, by 2.4% in 2014 and by 2.6% in 2015.

In the US, speculation is rife that senate leaders are closing in on a deal to reopen the federal government and avert a potentially catastrophic default on the international obligations of the US on Thursday, 17 October. Although nothing has been formally announced, it is thought that the deal being thrashed out would raise the debt ceiling until early February, reopen the government until January and include a mechanism to force lawmakers into longer-term budget discussions. In the meantime, the US dollar remains under heavy selling pressure as President Barack Obama postponed planned talks with Senate leaders in order to give them more time to finalise the outline terms of a deal.

If no deal is agreed, it is forecast that the US may hit its $16.7 trillion borrowing limit on Thursday and will then begin to default on its debts. There are great fears that a US default will trigger a new financial crisis and tip the global economy back into recession.

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