GBP to EUR: UK Trade Balance Fails to Support to Pound Euro Conversion Rate

October 12, 2014 - Written by David Woodsmith

STORY LINK GBP to EUR: UK Trade Balance Fails to Support to Pound Euro Conversion Rate

The Pound to Euro (GBP/EUR) conversion remained bearish as Sterling weakness continued and Draghi offered assurance.

The Pound Euro exchange rate (GBP/EUR) was bearish ealry Friday in a continuation of Sterling’s recent softening.

Although the UK Trade Balance figures showed a favourable narrowing in the deficit, but the Pound was unable to recoup losses against the Single Currency.

The UK Total Trade Balance showed imports dipping in August from -£3.079 billion to -£1.917 billion – the narrowest since April.

The Euro derived some strength from European Central Bank (ECB) speakers at the Washington International Monetary Fund (IMF) global economics gatherings.

ECB President Mario Draghi reiterated that he will continue the fight against deflation in the Eurozone.

UK Trade Balance Fails to Support to Pound E Sterling

The Pound was likely to be flat on Friday after a shakeup in UK politics and Bank of England (BoE) rate announcements have failed to cause much movement.

May’s UK general election is creeping ever closer, and in the months ahead the nation will witnesses intense political debate as UKIP attempts to shakeup the big three – something that could impact the Pound.

Friday has seen Westminster knocked for six as political party UKIP made history be securing its first elected MP – Douglas Carswell.

Furthermore, the party almost won another position in a close vote against the Labour party. The results promise to see an interesting election in seven months.

Carswell defected from the Tories as they failed to execute political reforms. Carswell stated: ‘To my new party, I offer these thoughts. Humility when we win. Modesty when we are proved right. If we speak with passion let it be tempered with compassion. Let us be a party for all Britain – and all Britons, first and second generation as much as any other. Our strength must be breadth. If we stay true to that there is nothing we cannot achieve.’

The BoE announced on Thursday that they would be keeping the present interest rate benchmark at 0.50%. Many economists expect the central bank to increase borrowing costs around February, prior to the general election.

However, some investors are still hoping there may be an increase in borrowing costs this side of Christmas.

Forex expert Philip Shaw commented: ‘We struggle to envisage the committee [Monetary Policy Committee] either beginning to tighten in the first few months of next year, so close to May’s general election, or waiting until the summer.’

Euro Fate Uncertain as Germany Heads Closer to Recession

Thursday's data showed that Germany’s exports have fallen at their quickest pace since 2009 - a time when the global financial crisis was at its peak.

Furthermore, the German industrial sector appears to have dramatically slowed in the last month, adding to the list of unfavourable Eurozone data.

Many fear the Eurozone could face a relapse into recession in the near future causing all eyes to be on upcoming European Central Bank (ECB) actions.

Economist Christian Schulz commented: ‘Evidence of a German slowdown is more prevalent in imports, which fell for a second successive month and are heading for a 0.6% decline in the third quarter.

That highlights that Russia’s aggression in Ukraine, which triggered the sizeable decline in German business confidence, is not affecting the economy much via trade links, but rather via the uncertainty it causes and which makes some companies delay investment plans. As that uncertainty fades, a fundamentally sound German economy should rebound quickly. We expect a return to significant growth in early 2015.’

The Pound to Euro was forecast to feel the impact of any statements made by the International Monetary Fund (IMF) or central bank officials at the Washington conferences held ton Friday.

Hawkish BOE statements could help to bolster the Pound; however, Sterling could remain bearish for the remainder of the day after Trade Balance figures failed to offer any strength.

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