Pound Sterling Stutters as UK Deficit Widens

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The Pound weakened across the board at the end of last week as Britain’s rising trade deficit weighed on economic sentiment. The UK deficit swelled from -£11.3 billion to -£12.7 billion as exports tumbled -0.7% and imports rose +3.3%. The disappointing data does little to suggest that the Pound’s 15% post-Brexit depreciation is having a positive impact on trade. In theory, a weaker currency can help improve competitiveness by making exports cheaper to foreign buyers. However, modern trade is complex and exporters often need to purchase raw materials from overseas before sending their finished products to the market. This to and fro can negate any positive impact of a depreciating domestic currency.

Pound to Euro Exchange Rate Remains Soft

The Pound to Euro exchange rate ticked lower yesterday as disappointing British trade data impacted demand for Sterling.

A separate report showed that UK industrial production expanded 0.3% in June, beating forecasts of a -0.1% contraction. The figure was accompanied by positive growth of 0.6% in the manufacturing sector, however, the mildly upbeat factory output figures were not enough to lift the mood of doom and gloom around the Pound and the UK trade deficit.

Indeed, GBP/EUR remains close to its lowest level for seven years as Brexit anxieties and receding Bank of England rate hike bets continue to weigh on Sterling.

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