March 24, 2010 / 4:48 PM / 9 years ago

Sterling hits 2-week low vs dollar after UK budget

* Sterling hits 2-week low vs dollar of $1.4875 GBP=D4

* UK budget cuts borrowing forecasts, but short on details

* Pound hits 1-month high vs weak euro

By Jessica Mortimer

LONDON, March 24 (Reuters) - Sterling fell to a two-week low against the dollar on Wednesday after the last UK budget before an imminent general election did little to temper concerns over Britain’s mounting deficit.

Finance minister Alistair Darling lowered his forecasts for public borrowing and confirmed plans to halve the deficit in four years, although analysts said the budget presentation was short on details on how this would be achieved.

“The bottom line would appear to be that we’re pretty much back where we were before the budget this morning in terms of the government’s plans to deal with the deficit,” said CMC Markets analyst Michael Hewson.

Darling also set the stage for the forthcoming election — widely expected in May — by announcing a 2.5 billion pound package to boost growth. He also found room for small giveaways such as cutting house purchase duty for first-time buyers. [ID:nLDE62N1QJ]

“This was probably a neutral to slightly negative budget. But the risks had been skewed towards the downside for cable (sterling/dollar) ahead of it and it has only just held on to the $1.49 handle,” said Stuart Bennett, senior currency strategist at Credit Agricole CIB.

At 1603 GMT, sterling was down 0.9 percent against the dollar GBP=D4 at $1.4908, close to an earlier two-week low of $1.4875.

The euro EURGBP=D4 was down 0.3 percent at 89.51 pence, having earlier hit a one-month low of 89.10 pence as it came under broad selling pressure on concerns over Greek indebtedness and after Fitch ratings agency downgraded Portugal’s debt.

The euro dipped below its 100-day moving average against sterling at around 89.15 pence, Reuters charts showed, although reasonable support was seen around 88.50 and 88.59 pence, 50- and 200-day moving averages respectively.

The wider euro zone fiscal worries dented investors’ appetite for risk and further weighed on sterling against the dollar, with traders saying selling accelerated after stop losses were triggered around $1.4925/30.

Just over a week ago sterling looked to be recovering from a 10-month low just below $1.48 hit in early March, rising above $1.53 and sparking talk it may be poised for more gains.

Concerns over political uncertainty and economic weakness, however, have since caused that recovery to falter.

POLITICAL FALLOUT

Little had been expected from a budget so close to an election and analysts said the focus may now turn to the resulting political fallout.

Investors will be looking in particular to see whether Darling’s select giveaways increase public support for the ruling Labour Party, further narrowing the Conservative Party’s lead in opinion polls ahead of the election.

Many in the market fear that if no one party won control, any incoming government would struggle to take the tough decisions needed to bring down the deficit, which Darling said would reach 11.8 percent of gross domestic product this year.

“Our initial view of the budget is that it is far more full of political rhetoric and looking to draw political lines ahead of the election than it is on major economic developments,” said Howard Archer, economist at IHS Global Insight.

The latest opinion poll showed an increased chance no one party would win overall control after the vote. [ID:nLDE62N009]

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