Sterling (GBP) Recovery Halted After Disappointing Deficit Data
Data released this morning revealed that February’s trade balance printed at -£4.84b, narrowing only slightly from January’s sum of -£5.23b.
Production was also shown to have worsened year-on-year, with industrial production coming in at -0.5% and manufacturing production printing at -1.8%.
Britain’s trade gap with the EU is also reported by the Office for National Statistics (ONS) to have widened to -£8.6b, a record high deficit.
The Pound Sterling to Euro (GBP/EUR) exchange rate hit a new weekly low during Thursday’s session before bouncing back on rekindled European Central Bank (ECB) easing concerns – the pair could budge on UK data due later.
‘Brexit’ Arguments Rock Sterling Confidence as GBP/EUR Hits New Weekly Low on Thursday
The EU referendum debate raged on throughout Thursday as an ISM poll revealing the narrowing lead of the ‘Remain’ camp over the ‘Leave’ camps was joined by controversial propaganda moves from the UK government.
News that Pro-EU leaflets, to be distributed next week, cost £9m of taxpayer money to produce stoked fires in the vote’s ‘Leave’ campaigners yesterday.
Cameron responded to accusations that the government had used taxpayers money to promote the Pro EU agenda by saying that the government was not neutral and unashamedly intended to use its resources to persuade citizens to remain in the EU.
The 16-page leaflet created by HMRC will be sent to over 27m British homes next week.
As concerns that a ‘Brexit’ could occur took centre stage in UK news once more, the GBP/EUR pair dipped to a new 22-month low of 1.2326 in Thursday’s session, before jumping up at least 90 pips towards the end of the day.
European Central Bank (ECB) Minutes Shake Euro
Despite GBP/EUR sinking for most of the week, the pair was able to find a firmer footing on Thursday afternoon following investor reactions to the ECB’s most recent meeting minutes being published publically.
Investors displayed mixed reactions to the news as the Euro floundered and fluctuated in response, with the weak Pound using the opportunity to gain a little ground.
Among the news scoured from the minutes release was confirmation that not only was further Eurozone easing possible, but multiple options had already been discussed. ECB President Mario Draghi had previously implied last month that the central bank’s easing potential had been wrung dry.
Among the possibilities discussed in the meeting was a tiered deposit rate system similar to the one used by the Bank of Japan. This would protect lenders from negative rates.
However, most policymakers rejected this proposal as they claimed there is currently ‘little evidence’ that negative interest rates have a widespread negative effect. This argument also lead analysts to believe that negative, or ‘subzero’ interest rates were a possibility in future ECB attempts to prevent deflation.
ECB Chief Economist Peter Praet also brought up the concept of ‘helicopter money’, claiming that the experimental idea of giving money directly to the public was not currently being discussed within the central bank.
To see the ECB’s policymakers so divided on easing methods inspired uncertainty towards the Euro, but may also have insulated the currency somewhat from more excessive losses.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: UK Trade Data Ahead
February’s Trade balance figures for Germany and the United Kingdom are due this morning and are likely to move GBP/EUR depending on which figure is more impressive.
As the Eurozone’s biggest economy, Germany’s trade surplus is forecast to improve from 13.4b to a more comfortable 18.0b, while Britain’s deficit is currently predicted to narrow slightly from -£3459 to -£3400.
Investors are likely to keep an eye out for UK year-on-year industrial and manufacturing production results, which are currently predicted to have worsened over their previous figures. With the ongoing UK steel crisis taking something of a backseat to the ‘Panama Papers’ scandal, these figures could return attention to UK’s steel production issues.
Ending the GBP/EUR’s week will be NIESR’s UK GDP estimate. While not an official figure, investors are likely to react to the Pound if it scores considerably higher or lower than the February figure of 0.3%.