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Pound Euro (GBP/EUR) Exchange Rate Slips as UK Trade Deficit Widens

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GBP/EUR Exchange Rate Tumbles on Slew of Disappointing UK Ecostats

The Pound Euro (GBP/EUR) exchange rate pared some of its recent gains on Friday as markets reacted to a run of disappointing UK ecostats.

Perhaps most pertinent amongst these was the UK’s trade balance readings, which recorded a deficit of £-4.896b in December, significantly wider than the market expectation of £-2.4b and the previous period’s £-3.652b.

This rise was predominantly caused by a rise in oil prices and imports.

According to other readings from the Office for National Statistics (ONS), the UK’s industrial output experienced its biggest fall since 2012 as a result of the shutdown in the Forties North Sea pipeline, whilst manufacturing saw a small rise of 0.3% month-on-month, the eighth consecutive month of growth within the sector.

Senior Statistician at the ONS, Ole Black, shared his thoughts on the readings:

‘The headline trade deficit widened in the fourth quarter with the impact of increased oil imports accentuated by rising crude oil prices. Construction was broadly flat across 2017 thanks to a strong December. However, house building and infrastructure were the only bright spots with all other areas of the industry falling back throughout the year’.

In other news markets seemed to have fully digested yesterday’s Bank of England (BoE) rate decision.

The bank’s optimism for the UK’s economic future and the possibility of a May rate hike might have initially sent Sterling soaring, but the sobering consideration that this could be entirely dependent on success in Brexit transition talks has quickly limited the Pound’s rally.

German Coalition Vote Ahead – What can Markets Expect for EUR Exchange Rates?

Today is a rather quiet data day for the bloc, though some upbeat publications in France and Italy’s industrial production sector might have helped keep the Euro (EUR) on reasonable footing.

French industrial production climbed by 0.5% in December, beating the previous period’s contraction of -0.5% and the market forecast of 0.1%, whilst Italy posted gains in both the monthly and yearly prints, which jumped by 1.6% and 4.9% respectively.

In other news markets are still digesting the announcement that Chancellor Merkel’s Conservatives (CDU) have clinched a deal with Martin Schulz’s Social Democrats (SPD) – a deal which came with huge concessions.

Investors were surprised to learn that the CDU has conceded the position of Foreign Minister to the SPD (should the agreement go ahead), an event that could have significant consequences for Germany’s governance.

It should be stressed, however, that the SPD’s 464,000 members will have to ratify the deal in a vote before anything is set in stone – a significant hurdle as a significant portion of the party still rejects the idea of resuming a coalition with the CDU.

In the meantime Euro (EUR) exchange rates continued to capitalise on the Pound’s current weakness.

GBP/EUR Exchange Rate Forecast: UK Inflation and Eurozone Growth in the Spotlight

As this trading week draws to a close markets will now be preparing for next week’s significant data events, with the UK’s inflation readings and the Eurozone’s growth figures liable to take centre stage.

The UK’s consumer price index will be released on Tuesday – a highly influential release that could make or break the chances of a May rate hike from the BoE.

The BoE has indicated as much in their latest statement, with a hawkish policy move very much dependent on the UK’s inflation being in-line with bank projections.

For the Eurozone, Wednesday will feature the bloc’s overarching growth readings, with a better-than-expected result liable to put the Pound Euro exchange rate under renewed pressure.

Beyond this the markets will continue to assess progress (or a lack thereof) in the Brexit negotiation process.