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Sterling Falls as UK Trade Balance is Weakened by Euro Crisis

Sterling Falls as UK Trade Balance is Weakened by Euro Crisis

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK visible trade balance comes in worse than expected at -8.56 billion pounds -> Lack of European demand for UK goods weakens trade balance -> Sterling falls

The UK visible trade deficit for March came in wider than expected at -8.56 billion pounds, but still narrower than February’s visible trade balance of -8.59 billion pounds. February’s deficit was revised lower from the previously thought -8.77 billion, according to the Office for National Statistics. Trade balance to non-EU narrowed to -4.1 billion pounds, better than the expected -4.7 billon.

Import of goods from Europe was way up from 16.9 billion pounds to 17.6 billion in March, while there was only a small rise in exports to Europe. Exports of goods to non-euro countries rose from 11.8 billion pounds to 13.2 billion. Therefore, the widening of trade deficit to Europe was offset by the narrowing of negative balance to non-EU countries.

The euro-debt crisis has clearly curbed demand for British goods in Europe, which is the UK’s biggest export market. As the pound continues to strengthen against the euro, as has been the trend over the past year, the trade deficit between the UK and Europe will continue to grow.

The lack of growth in European exports could be cited as one of the contributors to the fall in the first quarter UK GDP. Tomorrow, Bank of England Governor Mervyn King will hold a press conference to explain to the reason’s behind the MPC’s decision to not raise QE.

Sterling_Falls_as_UK_Trade_Balance_is_Weakened_by_Euro_Crisis_body_gbp.png, Sterling Falls as UK Trade Balance is Weakened by Euro Crisis

The narrower than expected visible trade balance was a bad sign for sterling. GBP/USD fell below 1.6100 and reversed gains the pair made over the past two days. EUR/GBP continued an earlier day uptrend back towards 0.8000.

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