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Sterling Stabalizes Following Robust Trade Data
Sterling stabilized following the UK trade data, which showed the total deficit declining in March. Export volumes were up 4.8%, which is encouraging after a weak performance in Q1 when the trade deficit cut 0.9 of a percentage point off GDP, though in the three months to April exports were flat after 0.3% growth in Q1. The pound had been underperforming ahead of the data, and the currency still remains net lower against both the dollar and euro.
Cable has settled around 1.5280, up from the intraday low at 1.5270. Trade data is too volatile month-to-month to justify a big market reaction, while the UK fundamental picture has lost some shine after the May composite PMI data declined notably, pointing to just 0.4% GDP growth in the three months to May, suggesting that the economy is struggling to rebound from Q1 weakness.
UK trade deficit fell to its lowest since March 2014, with the total deficit declining to GBP 1.2 billion from an upwardly revised GBP 3.1 billion. The deficit in goods fell to GBP 8.6 billion, also the lowest since last March and below the median forecast of GBP 9.9 billion, and declining from the March figure of GBP 10.7 billion. Export volumes were up 4.8%, which is encouraging after a weak performance in Q1 when the trade deficit cut 0.9 of a percentage point off GDP, though in the three months to April exports were flat after 0.3% growth in Jan-Mar. Sterling popped higher in response to the better-than-forecast dip in the deficit, but gains haven’t sustained.
Support on the currency pair is seen near the 50-day moving average at 1.5213, while resistance is seen near last week’s highs at 1.5440. Price action is consolidating as reflected by the relative strength index which is printing a reading of 48, which is in the middle of the neutral range.
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