UK Trade Balance printed much better than forecast coming in at -7.1B vs. -8.9B eyed as exports skyrocketed by 9.3% led by surge in oil and diamonds. Even excluding oil and diamond exports the Trade deficit narrowed to 6.725B from 8.433B – its best reading since December 2009.

The surprising strength in UK trade was also driven by an increase in exports with non -EU countries which climbed by 11% while imports fell by 5.3%. The improvement in UK trade balance bodes well for growth in Q3 of this year as the marked reduction on deficit will likely contribute positively to GDP.

Cable was steady in morning London trade holding above the key 1.6000 level but failed to make much progress in the aftermath of the release as offers at 1.6030 capped the rally for the time being. Risk currencies remain in a state of suspended animation as traders await the ruling of the German Constitutional court due out tomorrow, but if risk appetite awakens in North American session sterling will likely mount a run towards the 1.6050 level given today’s positive fundamental news.

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