Friday saw a continuation of the recent struggles for Sterling (GBP) following unimpressive trade data. Investors expected a slight reduction in the UK trade deficit from -8.2 billion to -8.9 billion, but actual data was revealed to show a widening of the deficit to -9.4 billion. This is likely due to a -1.9% slide in exports which will be disconcerting to those backing the Pound.
Exports have shown a marked declination of late as cited by June and July’s soft manufacturing data. The struggle has been blamed on both the 10% appreciation in the exchange rate, and the lack of meaningful growth in the Eurozone which is the UK’s biggest export market.
The Pound to Euro pairing trended below the crucial 1.26 barrier on Friday, continuing the depreciation by around a cent as the day progressed. The negative sentiment towards Sterling is perhaps a result of increased trader anxiety ahead of this week’s key labour market readings. The headline unemployment rate is forecast to drop from 6.5% to 6.4% which may provide a little relief, but the average earnings index is expected to post negative results. This could present further issues if the Bank of England (BoE) uses this data to justify holding off an interest rate hike until next year.
US Dollar (USD)
The less-than-ideal UK trade data also had an effect on the Pound to ‘Greenback’ (USD) pairing. During the London session the exchange rate decline by around half a cent, tumbling through resistance at just above 1.68.
With its safe haven qualities traders flocked towards the US Dollar in the wake of ongoing global military conflicts. This also contributed to Sterling’s losses on Friday. Risk aversion flows related to the geopolitical crises in Crimea, Gaza and Libya were exacerbated by the American army’s decision to start dropping bombs in Iraq.
Canadian Dollar (CAD)
Following a difficult set of Canadian labour market figures the Pound registered a 0.7 cent gain against the ‘Loonie’ (CAD). Despite an initial positive reaction to the headline jobless rate, which showed a decline from 7.1% to 7.0%, demand for the Canadian Dollar dampened as it emerged that the majority of the gains were found in part-time employment. It also transpired that 34,500 people stopped looking for work last month. The disappointing details within the report did little to bolster those waiting for the Bank of Canada to hike interest rates, not least as it showed that the downtick in job seekers brought the participation rate down to a 13-year low of 65.9%.
Australian Dollar (AUD)
The ‘Aussie’ (AUD) showed a 1-cent gain against Sterling on Friday following the soft UK domestic trade figures, further compounding the Pound’s misery against the majors. GBP/AUD movements are likely to be dictated by UK events this week as the Australian economic calendar is looking sparse.
New Zealand Dollar (NZD)
Following its Antipodean counterpart on Friday, the New Zealand Dollar showed a 1-cent gain on the Pound. Positive data regarding credit card spending surfaced late last night, showing a decline from +0.5% to -0.1% in July. The data had little impact on the GBP/NZD exchange rate however.
South African Rand (ZAR)
The Pound to South African Rand (ZAR) also reported losses having also suffered from weak UK trade data. The continued feeling of the ‘unknown’ regarding the Scottish bid for independence has weighed heavily upon sentiment towards Sterling.
The GBP/ZAR exchange rate is most likely to be affected by UK data, but Wednesday’s South African retail sales data may impact upon the pairing.