Pound drops further as trade deficit widens

Good morning. The pound fell again yesterday after figures showed the trade deficit was more than expected. We’re coming off near 12 month highs for GBP to Euro, and at 08:30am this morning rates are as follows:

  • GBP/EUR 1.1612
  • GBP/USD 1.4572
  • GBP/AUD 1.6273
  • GBP/NZD 2.0430
  • GBP/CAD 1.4905
  • GBP/CHF 1.6279
  • GBP/JPY 135.23
  • GBP/ZAR 10.873
  • EUR/USD 1.2543

Trade Deficit widens.
The pound fell nearly two cents (1.2%) against the US Dollar and by a cent against the euro, reversing gains made earlier in the week following the general election. Figures from the Office for National Statistics (ONS) showed that gap between the UK’s imports and exports widened last month.

The value of imports exceeded exports by £3.7bn ($5.5bn), up from £2.2bn gap recorded in February.

A weak pound good for the UK?
The Bank of England and some economists say that the government and BoE will be happy for the pound to remain weak as it makes UK exports cheaper for foreign buyers. While this may be true, it’s also true we don’t really export that much. The raw materials for what we do export usually have to be sourced from outside the UK anyway, so I don’t really agree that a weak pound will be good for UK recovery in the long term.

The future for Sterling
Certainly, it’s not good for the majority of our clients that will need to purchase a foreign currency with Sterling. It’s likely that given the scale of the task needed to reduce the fiscal deficit and get Britain back on an even footing, Sterling will remain weak for some time. As interest rates are likely to stay low, this will drive investment to other currencies with a higher return.

For these reasons, I think it’s unlikely the pound will go back towards €1.20 on the Euro. In fact further poor UK data could cause further falls. To discuss how to protect yourself against a drop in rates, click below to contact us today.

Enjoy your weekend.

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