This morning, UK trade balance figures came out for the month of December. The last release had shown the worse trade deficit figures on record for November so this morning’s increase to an imbalance between imports and exports of – 5.817 billion Pounds is severely disappointing when an improvement had been expected. This has not had a significant impact on Sterling so far this morning but will face some serious consideration in the Bank of England meetings and comes as a disappointment following last week’s good PMI data.
Pound Sterling – UK Markets
Sterling has come off highs against the Euro from earlier this week and has also fallen from yesterday’s levels against the US Dollar. Trade balance figures for December this morning are making headlines as the imbalance between imports and exports in the UK has once more swelled to a record deficit.
The Pound has been relatively unaffected by the trade figures in fact making mild token gains on most other major currencies so far today. The timely trade balance figures will no doubt however be discussed at this week’s Bank of England monetary policy committee meeting. Although December’s harsh weather is being partly blamed for the staggering deficit, there is no hiding from the fact that these figures were very disappointing with the total trade balance swelling to a 5.817 billion deficit where official forecasts had predicted an improvement.
More positive data for Sterling has come from the Confederation of British Industry that has raised its forecast for inflation to an average of 3.9 percent in 2011 - suggesting it is more likely that an interest rate hike could come in the second quarter.
US Dollar – US Markets
The US Dollar has gained ground on Sterling over the last twenty four hours whilst losing out to the Euro. A combination of factors including easing concerns about the situation in Egypt as well as expectations for improved US jobless data this week are creating these uncertain movements.
On one hand, risk appetite has been re-fuelled as tensions in Egypt are seen to lessen causing funds to flow away for the Dollar. On the other hand, some investors may predict the Dollar potentially strengthening on the back of data in the second half of this week, in particular tomorrow’s predicted fall in initial jobless claims.
Euro – European Markets
The Euro has experienced upwards movement in the past twenty four hours despite yesterday’s poor industrial production figures from Germany. The German trade balance figures this morning were robust with the surplus growing to 14 billion Euros.
Data from Europe has been mixed of late and tomorrow’s European Central Bank monthly report will offer an insight into how policy makers see the ongoing situation in the economy.
Other Currencies – Highlights
The Chinese interest rate rise by 0.25 percent has had relatively little impact on the currency markets with investors having already factored in this move that did not come as a surprise.
If anything, some thought that the increase in interest rates might be larger, which is why the reaction has been fairly moderate with the Australian Dollar showing an initial drop but making back ground by the end of the day. Many expect another interest rate rise in China in the not too distant future to deal with inflation.
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