Pound Slips on UK Trade Deficit Data
The Pound fell to a three-week low against the US Dollar, as traders sought a safe haven in the US currency when data, published by the Office for National Statistics (ONS), showed that the UK’s June trade deficit came in at £4.5bn, almost double the figure that City analysts expected. Exports fell by 4.9% in June, with an ING report suggesting that the impact of the weaker Pound seems to be less pronounced than it might have been ten years ago.
The North Korean regime has responded to Donald Trump’s calls for “fire and fury”, branding it as “nonsense” and threatened to hit the Pacific waters around the island of Guam with ICBMs. James Mattis, the US Defence Secretary, said that an attack would risk the end of the regime and the destruction of its people. Stock markets dropped across Europe and Asia, while the price of gold continued to rise.
Pound Sterling – UK Markets
Today, Sterling dropped against the US Dollar with the exchange rate set at $1.29, which is a three-week low. The Pound lost ground against the Euro, with the exchange rate set at €1.10. The release of data regarding the manufacturing and industrial output in the UK and the country’s trade balance made investors and traders cautious.
The manufacturing and industrial production data for June was positive after being in negative territory in May. Industrial production in June expanded by 0.5%, on a monthly basis, surpassing expectations for a 0.1% reading. On a yearly basis, industrial production increased by 0.3%, in contrast with expectations for a 0.1% decline. UK manufacturing production, on a year-to-year basis, expanded in June by 0.6%, in line with what analysts anticipated.
The bad news for the UK economy came from the trade balance data, released by the ONS. The total trade balance recorded a deficit of £4.5bn in June, £2bn more than the figure that economists were expecting. The deficit, which surprised the markets in a negative way, is the widest recorded in the last nine months. Exports of goods in June dropped by 4.9%, while at the same time imports increased.
US Dollar – US Markets
The US Dollar jumped against the Euro with the exchange rate set at €0.85. Later in the afternoon, the US Department of Labour will release data regarding the initial and continuing jobless claims on a weekly basis, which provides a measure of strength in the labour market.
Traders will also focus on the Producer Price Index data due later in the day, to see if there are rising inflationary pressures, or not. Any sign that indicates rising inflation will drive the US Dollar up, since, currently, US inflation, on a yearly basis, is below the Fed’s target. Analysts expect a 2.2% increase in the Producer Prices Index for July, on a year-to-year basis, while in June the reading came in at 2%.
FactSet, a financial information and analytic software provider, released a survey which reports that US corporate profits jumped in the first six months of the year, but gains in the future may be compromised by the inability of the Trump administration to deliver the promised reforms. According to the survey, companies in the S&P 500 saw an average 10% rise in their profits, during the second quarter of 2017. Tech companies, banks and energy firms benefitted the most, but market analysts stressed that earnings from energy shares will be tough to maintain at the current levels in the next quarters.
Euro – European Markets
The Euro slumped against the US Dollar, losing 0.3% in value, with the exchange rate set at $1.17. The single market currency fell for a second straight day against the US Dollar. Stock markets in several Eurozone countries suffered another sharp fall today, as the developments between the US and North Korea are not deemed positive for investments.
Most economists polled by Reuters believe that the European Central Bank (ECB) is more likely to announce a cutback in its asset purchase programme in September rather than October. Rabobank analysts suggested that the exact amount of adjustment will be discussed in the ECB’s December meeting. Almost 75% of the economists polled by Reuters said that the ECB should reduce its bond-buying programme, just before inflation in the Eurozone approaches the 2% target.
An opinion poll by the INSA Institute, published in Germany, showed that the conservatives, led by Chancellor Angela Merkel, are twelve points ahead of the social-democrats, led by Martin Schulz. The next federal election in Germany is on 24th September, with most election polls suggesting that Chancellor Merkel will remain in her position.
Other Currencies – Highlights
The Pound lost ground against the Australian Dollar, trading at 1.64 AUD. BIS Oxford Economics published its “Building in Australia” forecast in which it says that the record home-building boom is already past its peak and there is much worse to come. BIS Oxford’s analysts suggest that the number of new houses being built will drop from the current 230,000 per year to around 160,000 in just three years, marking a 31% slump. The report says that the reason for the projected steep decline is the construction boom in the previous years, which has wiped out the housing undersupply at a national level.
Sterling climbed to 1.78 NZD against the New Zealand Dollar. The Reserve Bank of New Zealand (RBNZ) announced that it left its benchmark interest rate unchanged at 1.75%. In its Monetary Policy Statement (MPS), the RBNZ upgraded its economy growth outlook and downgraded its inflation forecast. The RBNZ statement said that economy has to grow more significantly above trend to generate the higher inflation levels that the central bank desires. John McDermott, the RBNZ’s assistant governor, said that the central bank is slightly uncomfortable with the Kiwi exchange rate level and stressed that the rates will stay at the current level for quite a long time.