- Update: Pound Up Despite Poor Q1 Deficit – Investors focus on optimistic March scores
- ‘Brexit’ Concerns Rear Their Head– New warnings & concerns of influence on Eurozone
- Update: US Data Optimistic – Labour market impresses, wholesale inventories as expected
- Forecast: UK Production Tomorrow – Followed by UK GDP estimate, US budget startement
Investors were eager to buy into the Pound on Tuesday as thoroughly mixed (and mostly negative) data was enough of a reason for Sterling to strengthen.
March’s UK trade balance reports narrowed more-than-expected in all prints, but the full report published by the Office for National Statistics (ONS) revealed that the deficit was overall worse in Q1 2016 than in Q4 2015 – and the UK’s widest deficit since 2008.
The US Dollar slipped despite Monday’s labour market conditions index printing a better-than-expected contraction of -0.9, with Tuesday’s wholesale inventories report coming in at the expected 0.1%.
Earlier…
The Pound Sterling to US Dollar (GBP/USD) exchange rate initially looked to be gaining on Tuesday as investors reacted to positive UK data, despite generally optimistic US data released on Monday. However, the Pound’s advance fluctuated in response to news that the UK’s Q1 deficit had worsened overall since Q4 2015.
On Tuesday, the GBP/USD exchange rate had gained around 0.3% and was trending in the region of 1.4450. The pair remains quite close to the week’s opening levels of 1.4431, with the Pound continuing to gain ground.
Pound (GBP) Boosted Slightly by March Trade Balance Despite 2008 Low Deficit
The UK’s economy has been a source of concern for many investors for the last week, as poor PMI indicated that the British economic growth could be nearing stagnation.
Despite this, the Pound remained sturdy against rivals like the US Dollar as bets that the UK could make a ‘Brexit’ from the European Union in June have waned.
The UK’s key March trade balance reports were released on Tuesday by the Office for National Statistics (ONS). Among its prints were the British goods trade deficit update, which narrowed from £-11.420b to £-11.200b in March and beat forecasts of £-11.300b.
The total trade deficit also lightened from £-4.30b to £-3.83b. However, despite March’s better-than-expected results, the ONS reports that overall Q1 2016 deficit had widened from Q4 2015’s figures.
The BBC reports that the UK’s trade deficit isn’t just down in Q1, it’s at its worst point since 2008.
‘There was a slight improvement in March’s numbers, with the deficit in the trade in goods narrowing a bit to £11.2bn from £11.4bn in February.
But the British Chambers of Commerce, a business group, said this was little cause for comfort.
“In spite of the small improvement seen in March, the UK’s trade deficit worsened over the quarter and remains unacceptably large,” the group said.’
US Dollar (USD) Movement Uncertain as Fed Policymakers Speak
The US Dollar has had comparatively little data to react to thus far this week, with the currency still reeling from lower Fed rate hike bets after last week’s poor Unemployment rate data was released.
With some analysts even suggesting that the Federal Reserve may no longer hike the key interest rate twice in 2016, the ‘Greenback’ has become unappealing despite other positive data released since.
Monday’s labour market conditions index change report revealed a smaller-than-expected contraction of -0.9. The figure was originally forecast to narrow from March’s bearish -2.1 to -1.0.
Federal Reserve policymakers have also spoken this week, adopting a generally reassuring tone. As reported by Reuters, San Francisco Fed President John Williams claimed a greater number of new, inexperienced workers being hired meant that productivity would be lower as they caught up with more experienced workers.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: US Wholesale Data and UK Production Reports Ahead
GBP/USD could continue to fluctuate throughout Tuesday depending on the strength of the upcoming US wholesale reports. Slightly better-than-expected results could see GBP/USD trading flatly as Sterling’s morning gains are erased.
Due for release on Tuesday afternoon, March’s wholesale inventories report is currently predicted to leave February’s negative territory of -0.5% to print at 0.1%. Wholesale trade sales are expected to improve from -0.2% to 0.5% month-on-month.
Wednesday sees another key day for UK data, with March’s industrial production and manufacturing production reports due in the morning. These are largely expected to improve, though manufacturing is estimated to have worsened year-on-year.
These are followed by NIESR’s estimate of British GDP, which could dent Sterling appeal if it reflects analyst fears of a near-stagnating economy.
The US, on the other hand, sees the 6th of May crude oil inventory update, followed by April’s monthly US budget statement later on Wednesday evening.
Lastly, the GBP/USD exchange rate could see more considerable movement in response to this week’s upcoming ‘Super Thursday’. The Bank of England (BoE) is due to announce its latest key rate decision and asset purchase target, as well as a new inflation report.
At the time of writing, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending around 1.4450, while the US Dollar to Pound Sterling (USD/GBP) exchange rate trended in the region of 0.6918.
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