Sterling Makes Surprise Rally Following News of a Widened Trade Gap
THE TAKEAWAY: UK visible trade balance for February comes in worse than expected at -8.772 billions pounds -> exports of cars and heavy machinery drops -> GBD/USD surprises with a rally to weekly highs
The UK trade deficit rose to its highest level in three months in February due to a decline in export of cars and heavy machinery to China, Russia, and the United States. The visible trade balance for the month came in at -8.772 billion pounds, compared to analysts’ estimates of a 7.650 billion pound deficit. January’s balance was also revised lower to -7.883 billion pounds.
Exports for February fell 3.4% while imports were unchanged. The government is looking to boost exports to bolster the British economy to counterbalance unemployment and inflation. Prime Minister David Cameron is currently leading a trade and diplomatic delegation to Japan and Southeast Asia to this end.
Although a widening trade deficit usually means a decline in value for the country’s currency, GBP gained strength against USD and JPY on news of the higher than expected trade deficit. Following the data, GBDUSD hit a weekly high of 1.5950.
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