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Surprisingly Widened November UK Trade Deficit Adds to Pound Euro (GBP/EUR) Exchange Rate Weakness Today

Pound Euro (GBP/EUR) Exchange Rate Under Pressure After Unexpectedly Wide Trade Deficit

A rather mixed raft of UK trade and production data saw the Pound to Euro (GBP/EUR) exchange rate slump once again today, with confidence in the domestic outlook still rather limited.

Investors were particularly discouraged by an unexpectedly sharp widening of the visible trade deficit in November, which grew from -11.68 billion to -12.23 billion on the month.

This highlighted the continued vulnerability of the UK economy to any further deterioration in trade conditions, putting GBP exchange rates under fresh pressure.

While industrial and manufacturing production both remained solid this was not enough to keep the Pound (GBP) from trending lower across the board, ceding significant ground to rivals such as the New Zealand Dollar (NZD) and Australian Dollar (AUD).

With the UK economy still demonstrating signs of vulnerability, even amidst other solid data, the GBP/EUR exchange rate naturally lost traction.

Dovish Market Forecasts for ECB Policy Action Limit Euro (EUR) Demand

Confidence in the Euro (EUR), however, remained somewhat muted on Wednesday morning, limiting the losses of the GBP/EUR exchange rate for the time being.

In spite of the Eurozone unemployment rate falling from 8.8% to 8.7% in November the appeal of the single currency has failed to pick up, with markets still sceptical of the odds of any imminent European Central Bank (ECB) hawkishness.

As policymakers look set to leave monetary policy unchanged over the coming months the upside potential of the Euro looks relatively slim.

This is likely to encourage some volatility for the GBP/EUR exchange rate with the release of the ECB’s latest meeting minutes on Thursday.

Unless President Mario Draghi and other policymakers show some signs of moving towards a more hawkish policy outlook the Euro could extend its bearishness further, leaving EUR exchange rates on a softer footing.

Steady Fourth Quarter UK GDP Estimate Forecast to Support GBP/EUR Exchange Rate Today

The GBP/EUR exchange rate could find a rallying point this afternoon if the NIESR gross domestic product estimate for the three months to December proves encouraging.

Forecasts point towards the figure holding steady at 0.5%, something which may encourage investors to buy back into the Pound today.

Even so, as quarterly growth of 0.5% would still put the UK near the bottom of the pack within the G7 group of advanced economies any boost from the data could prove short-lived.

Any indications that the UK economy lost momentum heading into 2018, meanwhile, are likely to weigh heavily on GBP exchange rates, with Brexit-based uncertainty expected to further hamper domestic growth.

As Bloomberg Economics analysts Dan Hanson and Jamie Murray commented:

‘It’s welcome news that talks will move on to trade this year, but that doesn’t mean the talks will get any easier — if anything, the opposite is true. The specifics of the Irish border or financial services being excluded from any trade deal are probably the most likely triggers for a breakdown at the negotiating table.’

With Theresa May’s position still looking rather fragile in the wake of her anticlimactic cabinet reshuffle jitters over UK politics are also likely to remain a drag on the GBP/EUR exchange rate going forward.