Currency Exchange Rate - Pound Dollar GBP USD Loses Ground on Worrying Chinese Trade Figure

April 11, 2011 - Written by John Cameron

STORY LINK Currency Exchange Rate - Pound Dollar GBP USD Loses Ground on Worrying Chinese Trade Figure

The Pound Euro exchange rate (GBP/EUR) is 1.1317. The Pound Dollar exchange rate (GBP/USD) is 1.6367.

Chinese trade figures released overnight initially appeared positive, showing an annualised increase in exports of 35.8% against analysts’ expectations of a 23.4% improvement. The 12-month net trade figure also showed that China’s trade balance was still in the green, against expectations of a deficit.

However, on closer inspection, the Chinese data provides considerable cause for concern; looking at the quarterly numbers, China posted a trade deficit of $1.02Bn in the first quarter of 2011. This is the first quarterly trade deficit in China for over seven years, raising concerns over the effect that a tightening of domestic monetary policy and reduced demand from key trade partner Japan, will have on the Chinese economy.

A weakening of Chinese economic growth would threaten to halt the recent increase in appetite for risk in global markets and could see the US Dollar gain support in its role as a safe haven currency. Equities have seen a mixed session in Asia since last night’s re-open, with the Nikkei 225 down by 0.65% on the day so far. The US Dollar has seen some limited support in early trading, thanks to the erosion in appetite for risk, with GBP/USD and EUR/USD both re-tracing from near-term highs.

Turning to the UK, the Pound remains under selling pressure against most of the majors, with the exception of the US Dollar. With no UK tier one data due out until midnight, when March Retail Sales and RICS House Price numbers are released, it is likely that Sterling will trade in the direction of its current trend during today’s European session. Tomorrow morning’s UK CPI Inflation figure will be key in determining future interest rate expectations and the direction for the Pound for the remainder of the month.

Friday’s Asian session sees the release of a slew of key Chinese data, with New Loan, CPI Inflation and Q1 GDP Figures providing a strong indication of the state of health of the world’s second largest economy. Further worse-than-expected figures could see the USD gain back more of the ground that it has lost over the past two weeks.

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