UK trade balance sends exchange rates lower

The Pound fell yesterday morning as official figures showed a weak month for manufacturing in the UK in July, and a widening trade balance.

The trade balance, which measures the difference between imports and exports, was over £1bn worse than expected, while manufacturing production fell by 0.5%, compared to an expected figure of 0.5% growth. The overall deficit in goods and services was £3.4bn in July, up significantly up from £2.6bn in June.

Sterling fell against the Euro and US Dollar when the figures were released at 9.30am and finished lower against most currencies at the end of European trading, despite staging a small recovery in the afternoon. Rates for sending US Dollars and Euros abroad are now 1% and 3% worse respectively, than a month ago, not helped by a pessimistic GDP estimate released by the NIESR at 3pm.

Bank of England minutes today

Today’s main news will be the release of the Bank of England’s interest rate decision and accompanying minutes, at midday. It is very possible that the Monetary Policy Committee will revert to a unanimous vote against interest rate rises, compared to an 8-1 decision last month, on the back of the Chinese slowdown and turmoil in financial markets in August. This would not be good news for the Pound. There is a new committee member, Gertjan Vlieghe, who is seen as unlikely to vote for a rise, and with inflation forecasts cut, the one voice for a hike in August (Ian McCafferty) may side with the rest of the committee. Now that the minutes and decision are announced on the same day, will we see another sterling slide as we did last month?

There is no other major data due out today so currency rate movements are likely to be driven by the lead up to and aftermath of the Bank of England’s decision and accompanying statement.

Australian Unemployment

The Australian Dollar strengthened last night as AU unemployment figures showed 17,400 jobs adding to the local economy in August. The Aussie has gained about 1% in value overnight.