UK Trade Deficit At Five Year High

The UK trade deficit is near a five year high, hitting £8.7 billion in July with the Pound remaining under pressure. Sterling was trading at the mid-market rate of 1.5443 against the US Dollar and 1.2135 against the Euro at 9.30 am this morning.

Pound Sterling – UK Markets

The Pound is experiencing volatility against the Euro and US Dollar with uncertainty over how long the currency can hold out for. UK markets are undergoing poor news on most fronts. Reports earlier in the week suggesting that the UK’s rising factory production figures hinted at a booming export market, have now been overshadowed by the arrival of the trade deficit figures as a whole. The trade deficit has widened to a record £8.7 billion in July from £7.5 billion in June, the most in almost five years. A surprise surge in imports to their highest levels in two years is being held accountable. This morning’s various Producer Price Index data has disappointed across the board. The data, which provides a monthly measurement of the prices of goods and services for UK manufacturers, has come in well below expectations. Yesterday’s Bank of England decision to keep interest rate at the low 0.5 percent was no surprise but equally won’t help to boost markets.

US Dollar – US Markets

Yesterday’s US jobs figures showed a drop of initial jobless claims by 27, 000 last week to 451, 000 beating a lower expectation of a drop to 470, 000. This has had a significant impact on the currency markets shoring up confidence in the global currency markets and pushing investors to become less risk averse with safe currencies such as the Swiss Franc and Dollar itself declining. This has been helped along by the US trade deficit narrowing to 14 percent in July.

Euro – European Markets

The Euro has spent most of the week in a fragile state following The Wall Street Journal’s claims that banks did not provide as much information as suggested for the bank stress tests. Remarks by one of the European Central Bank executive board members that German banks need more capital did not help matters. There is no significant news on the Euro today so it is likely to respond to wider market movements.

Other Currencies – Highlights

There has been a surprise surge in imports in China during August leading to the Chinese trade surplus to again be over $20 billion. Imports have risen 35.2 percent from a year ago faster than the 26.1 percent which was expected. The US Congress is due to hold hearings next week on China's controversial exchange rate policy regarding claims that China gives an unfair advantage to their own import markets by keeping the currency weak. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000