Uk trade deficit narrows, but by less than forecast as markets await ECB and BOE rate decisions

Tom Tong10/Jan/2013Currency Updates

GBP

The pound fell below a key support at 1.60 yesterday for the first time this year as speculators took positions in the belief that the the Bank of England will signal more stimulus as the economy struggles to recover. Sterling also suffered after ONS figures showed that the November trade deficit had narrowed by less than had been forecast. The ONS figures also confirmed a change in mentality for UK companies who are now increasingly swerving Europe for exports and heading to new markets further afield.

The UK retail sector continued to come under pressure with Marks and Spencer’s dire Christmas performance and the collapse of major retailer Jessops grabbing the headlines. This news suggests a drop in consumer confidence in the UK going into 2013. Despite the gloom on the high street the rally in financial markets continued apace as the FTSE 100 reached highs not seen since the crash in 2008 and continued tot rade above the 6100 mark.

Today the market will focus on the BOE interest decision with analysts expecting rates and the asset purchase programme to remain unchanged, Any surprises will of course cause volatility.

USD

The dollar made continued headway against the yen and the euro and the pound on Wednesday ahead of the European Central Bank meeting. The dollar index, which measures the US currency against a basket of six major currencies, advanced to 80.515 from 80.323 on Tuesday.

There has been optimism in global markets this week as banking stocks rally and there has been a strong start to corporate earnings season in the US.

The only data release of importance coming out of the US today is the initial jobless claims figures that are expected to show an improvement on last month.

EUR

The euro was down against the dollar at yesterday following disappointing German industrial production data for November. whilst the single currency continued to trade a relatively tight range against the pound.

Angela Merkel continues to talk tough on austerity maintaining a hard line in her stance towards a bailout for Cyprus. In order to qualify for any bailout funds the Cypriot government must agree to a significant package of reforms.

Today we have the ECB monetary policy statement and and press conference with most market participants expecting rates to be held. Rhetoric will be closely monitored for clues on the possibility of future rate changes.

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Written by Tom Tong

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