UK Trade Hits Widest Deficit Since June – Pound (GBP) Exchange Rates Tumble
Demand for the Pound (GBP) tumbled on Wednesday as markets reacted to a run of mixed UK ecostats.
Chief amongst these was the unexpected widening of the UK’s total trade deficit, which rose from £2.270B to £2.804B between October and November.
This marks the largest trade deficit since June, with the predominant cause being a significant increase in fuel imports (primarily oil) from non-EU countries.
In other news, UK industrial production has proved stronger than expected, climbing from 0.2% in October to 0.4% in November.
Conversely, construction output proved weaker that forecast, rising at 0.4% year-on-year in November, well below the 1.3% forecast.
The poor trade balance figures quickly weighed on the Pound, effectively leaving it floundering against the majors.
GBP EUR Exchange Rate Drifts Lower Despite German Political Uncertainty
The Pound Euro (GBP EUR) exchange rate slipped on Wednesday despite ongoing uncertainty over Germany’s political future as coalition talks between Angela Merkel’s Christian Democratic Union (CDU) and Martin Schulz’s Social Democrats (SPD) continue.
Schulz has vowed for a ‘new style’ of politics in Germany, hoping to gain significant concessions from Merkel who is, in turn, anxious to fight off the possibility of another election.
So far this has resulted in Merkel agreeing to abandon the country’s 2020 target for carbon emission cuts – a minimal compromise for the CDU but a compromise nonetheless.
Markets are apprehensive on two fronts; the first reason being that Merkel may compromise on policies which could have drastic effects on the German economy (such as welfare and immigration), and the second being the risk that both parties will fail to find equal ground, thus forcing another election.
Despite this uncertainty the Pound’s current weakness has kept GBP EUR firmly in the Euro’s favour.
US Fed Remarks Extend GBP USD Exchange Rate Losses
The US Dollar extended its lead against the Pound (GBP USD) on Wednesday as markets digested various remarks from Federal Reserve officials.
Fed Cleveland President Loretta Mester asserted that the newfound strength of the US economy and the low levels of unemployment make a strong case for four rate hikes this year – up from the previously forecast three.
Similarly, San Francisco Fed President John Williams stated that he could see three rate hikes this year, saying:
‘The economy is doing great, everyone expects us to raise rates gradually … and if the data changes we can respond to that. I’m not worried about inflation suddenly taking off … something like three rate hikes makes sense to me this year.’
These hawkish comments were offset to an extent by dovish ones, with Atlanta Fed President Raphael Bostic stating earlier in the week that the US central bank ought to continue raising short-term interest rates, though perhaps at a slower pace than the previous year.
The markets ultimately paid more attention to the hawkish remarks, with the US Dollar (USD) quickly capitalising on this outlook.
Bank of Canada (BOC) Rate Hike Hopes Leave GBP CAD Exchange Rate Floundering
The Canadian Dollar (CAD) continues to be lifted by hopes that the Bank of Canada (BoC) will move for a rate hike this month.
Markets have reacted favourably to recent data from Canada, with unemployment notably down to 5.7% – a range not seen since the 1970’s.
Analysts have picked up on these reports, asserting that they make a resumption in monetary policy tightening more likely.
Nick Exarhos, an economist at CIBC Capital Markets shared this sentiment stating:
‘In our judgement, that should be enough to see the BoC hike rates later this month, with the employment figures more than enough to offset recent disappointments on GDP.’
The GBP CAD exchange rate fell on this optimism.
GBP AUD Exchange Rate Remains Weak, Aussie Building Boom Continues
The Australian Dollar (AUD) continues to benefit from the apartment building boom, with figures from the Australian Bureau of Statistics (ABS) revealing an 11.7% jump in building approvals in November, smashing forecasts of a decline of 1%.
This marked the third-largest monthly total on record, a rise driven by ongoing construction in high-density dwellings.
Looking ahead, markets are pondering the possibility of a hawkish move from the Reserve Bank of Australia (RBA) in mid-2018 – an outlook that continues to hold the GBP AUD exchange rate in the ‘Aussie’ Dollar’s favour.
GBP NZD Exchange Rate Hits Two-Month Low
The Pound New Zealand Dollar (GBP NZD) exchange rate remains around yesterday’s two-month low, with the New Zealand Dollar proving that it still has a great deal of momentum.
Recent soaring global dairy prices continue to foster demand for the NZD, though looking ahead, market concern remains over the new leadership and exactly how the Reserve Bank of New Zealand (RBNZ) will balance its dual mandate.