Yesterday UK Trade Balance statistics showed a deficit of £9.814Billion for September, a whole £1Billion worse than analysts had expected, adding to the growing concern that the UK economic reform will stutter in the fourth quarter. And while this data had little bearing on the GBP/EUR rate compared with Italy’s gargantuan €1.9Billion of debt and catastrophic 10-year bonds yielding over 7.0%, it did however cause the Pound to drop sharply against the US Dollar.
The bleak domestic economic outlook, with growth predictions falling from 1.2% to 0.9% this year, and falling from 2.2% to 1.3% for next year caused the GBP/USD rate to drop to lows of 1.590. There was some sign of strength from the Pound, however, with UK manufacturing reports recently released, showing an increase of 0.2% from the previous month when it fell 0.3%. Although the Pound has benefitted from flight to safety investors from the Euro; the UK’s close ties with the Eurozone have rendered US Dollars as an even safer haven in the eyes of investors.
Important data released today from the Bank of England, confirmed analysts suspicions that it would remain unchanged on interest rates and quantitative easing. The BoE announced that it would maintain its 0.5% rate; there were some fears that it would follow the European Central Bank’s lead and cut rates. On November 3rd the ECB cut rates from 1.5% to 1.25% in response to heavy economic pressure on the Eurozone.
The BoE also announced that its Asset Purchase Facility (Quantitative Easing) – the value of money that the BoE plans to create and inject into the economy through open market bond purchases as a way to influence long-term interest rates – would remain unchanged at £275Billion.
Some analysts had suggested that a lack of guidance from the Bank of England could unnerve UK investors but as we speak the GBP/USD has strengthened on the back of the decision to 1.596.
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