Trade Deficit, Industrial Production Hurt Pound
Sterling hit a nine-day low against the Euro and slumped against the US Dollar on news that the UK’s trade deficit widened in May and that the industrial output of the UK’s economy dropped unexpectedly in the last month of Spring. Investors and traders were disappointed by the data, which seemed to confirm the view that the British economy is faltering.
The release of the US Non-Farm Payrolls data for June, later in the day, is expected to act as a market mover. Analysts expect a strong positive result, much better than the disappointing May reading. If their expectation is confirmed, it will be an indication that the US economy is on the right track and will bring closer the possibility of a third interest rate hike by the Fed during this year.
Pound Sterling – UK Markets
Today, Sterling tumbled against both the US Dollar and the Euro, trading at $1.29 and €1.13 respectively. The Office for National Statistics (ONS) released a series of data for the month of May that made the British Pound suffer.
According to the ONS, industrial output fell back into contraction in May, after having posted positive results in April. Britain’s industrial production fell by 0.1%, instead of increasing by 0.4% as it was anticipated. Manufacturing output dropped by 0.2%, on a monthly basis, versus a rise of 0.2% seen in April. On an annualised basis, UK manufacturing production figures came in at 0.4% in May.
Sterling suffered one more blow by the publishing of data regarding the UK’s trade balance. The ONS announced that, due to an increase in imports, Britain’s trade deficit widened by £1bn in May, reaching a total of £3.1bn. It should be noted that City analysts were expecting a £0.5bn increase of the trade deficit. More specifically, imports of transport equipment such as cars, planes and ship, from non-EU countries played a significant role in the widening of the deficit.
US Dollar – US Markets
The US Dollar strengthened slightly against the Euro with the exchange rate set at €0.87. Investors and traders have shifted their attention to the release of data regarding Non-Farm Payrolls (NFP) for June, later in the day.
The report will show how many US citizens found jobs in the last month. Analysts expect that the NFP rose by 179,000 for the first summer month. The number, if confirmed, will show that the US economy is creating jobs and continues to expand. If the consensus number comes true, it is expected to create additional pressure to the Fed to keep raising interest rates.
President Trump will meet with the Russian president Vladimir Putin today, in their first encounter since he was elected. The two presidents will have a discussion, since they both are currently in Germany for the G20 world summit. Trump delivered a speech in Poland yesterday, in which he urged Russia to cease fighting in Ukraine and stop supporting the Syrian and Iranian regime.
Euro – European Markets
The Euro dropped against the US Dollar, trading at $1.14. Data released from the German Economy Ministry showed that industrial production rose in May by 1.2%, beating the consensus forecast of 0.3%.
The upturn has its roots in a surge in energy production and the factories producing more consumer goods. The ministry’s report said that the trend in the industrial sector is clearly pointing upwards. German analysts suggest that, according to data, the industrial output sector is set to grow by 2% in the second quarter of the year, which hasn’t happened since the beginning of the economic crisis in 2010.
In France, May exports went up by 4.3% and imports rose by 2.2%. ECB’s executive member, Bernard Coeure, said that the economic recovery is finally here. Coeure added, that because the recovery is of a cyclical nature, it would be unwise for the ECB to let its guard down. The French top economist noted that there are no disagreements over the current monetary policy stance among ECB board members. Coeure reiterated the need for the governing council to continue to adjust its instruments, both qualitatively and quantitatively.
Other Currencies – Highlights
The Pound slumped against the Australian Dollar, trading at 1.70 AUD. The Australian Department of Industry, Science and Innovation revised down the resources export revenue forecast on iron ore outlook by 4.6% in the financial year that ended in June. The revision is due to the falling prices of iron ore in the market. The Department forecasts that prices of iron ore will average $62 a tonne in 2017, but will drop to $48 in 2018. Australia is the largest exporter of the commodity.
Sterling dipped against the New Zealand Dollar, trading at 1.78 NZD. A Reserve Bank of New Zealand’s (RBNZ) report has shown that the amount that New Zealanders borrowed for housing continued to grow in the year to May, but the growth rate declined for a fifth month in a row. ASB bank economists commented on the report saying that the slowdown was expected as higher deposit requirements and higher long-term mortgage rates have dampened demand.