UK Trade Data Disappoints, Pound (GBP) Exchange Rates Tumble
Pound Sterling (GBP) exchange rates tumbled on Wednesday, falling on reports that the UK’s trade deficit widened in November.
According to figures from the Office of National Statistics (ONS), the UK’s trade deficit widened to £-2.804B in November, even wider than the previous period’s £-2.270B.
This was the largest trade deficit since June, with massive increases in the importation of fuels from non-EU countries broadening the figure.
In other, slightly better news, UK industry has enjoyed its longest growth run in 23 years by increasing for eight consecutive months.
Industrial production grew at 0.4% in November, beating the previous period’s 0.2% rise, whilst manufacturing output similarly leapt by 0.4%.
Ole Black, Senior Statistician at ONS shared his thoughts on the readings:
‘There was strong and widespread growth across manufacturing with notable increases from renewable energy projects, boats, planes and cars for export’.
Despite this optimism, the sizable increase in the UK’s trade deficit limited the upward potential of the Pound.
Euro Pound (EUR GBP) Exchange Rate Retains Lead Despite German Political Uncertainty
Euro (EUR) exchange rates seemed largely unperturbed by Germany’s ongoing lack of a legitimate government on Wednesday, though dovish market forecasts on ECB policy are keeping things somewhat muted.
German Chancellor Angela Merkel’s Christian Democratic Union (CDU) and Martin Schulz’s Social Democrats (SPD) are currently in the midst of negotiations.
Thus far the only compromise to occur has been the abandonment of Merkel’s 2020 target for carbon emission cuts.
Investors are worried that massive changes to policies in areas like welfare will result from a renewed coalition between the two parties. However, failure to reach an accord could result in another election.
Such an eventuality would prolong political uncertainty within the currency bloc’s largest economy and undermine demand for Euro exchange rates.
Euro Pound (EUR GBP) Exchange Rate Forecast: UK GDP in the Spotlight
Markets are currently reacting to the ahead-of-schedule release of the UK’s NIESR gross domestic product (GDP) estimate for December, with a print of 0.6%, up from the previous 0.5% and the forecast of 0.5%.
This indicates that the UK economy was on fairly resilient form heading into 2018, but the data hasn’t been enough to swing EUR GBP back into the Pound’s favour.
Looking ahead, Thursday will feature Germany’s GDP release, as well as the release of the Bank of England’s (BoE) credit and conditions bank liabilities surveys, both events that could have significant consequences for the EUR GBP exchange rate.