Pound Rises Against Dollar on Data Showing the UK is Exporting More

A positive rise in exports compared to imports helped push Pound Sterling higher against the Dollar ahead of the weekend which allowed it to shrug off poor manufacturing data.

The Pound rose against the Dollar in the five minutes following the data dump at 9.30 GMT.

The Trade Balance narrowed marginally to -10.83bn in February from a previous -10.91bn, and it far surpassed expectations of a widening of the deficit to -11.05bn.

Sterling appeared to shrug off poor Manufacturing Production results of -0.9% in January, which were a steep decline from the 2.2% growth in the previous month and also lower than the -0.5% forecast by economists.

Industrial Production fell by -0.4% in January, which although lower than the December figure was in line with analyst’s estimates.

Sterling may have shrugged off the data because despite the monthly miss the sector has continued to perform reasonably well over the medium-term.

"But after hefty rises at the end of last year, these two sectors still look on track to provide a 0.2 percentage point contribution to GDP growth in Q1, larger than Q4’s 0.1pp contribution. Of course, these sectors only account for around 20% of the economy and the Markit/CIPS services PMI suggests that the services sector lost some momentum at the start of the year. But they should nonetheless prevent GDP growth from slowing too much in Q1," said advisory service, Capital Economics' Ruth Gregory, in a note seen by Pound Sterling Live following the release.

The Pound may also have been supported by better Construction Output, which showed a surprising 2.0% rise when a -0.2% decline had been forecast.

A Bank of England (BOE) survey of inflation expectations, meanwhile, showed a rise of 2.9% from 2.8% previously, highlighting how the weak pound is making shoppers concerned about price inflation in the high-street, as recently illustrated in the BRC’s Retail Sales Monitor.

The Pound had been in retreat until the release after falling following a negative assessment of the budget on Wednesday.

Market disappointment at the lack of fiscal stimulus in the budget and the increased belt-tightening, which compares negatively to the US, for example, where the reverse is being pondered, encouraged the sell-off.

The policies will probably keep government bond yields low in an environment of rising yields internationally.

The tighter public purse strings will mean the Bank of England (BOE) will have to do all of the heavy-lifting in regards to stimulating the economy should it start to slow down next year as the OBR suggests.

It will keep the pressure on the BOE to keep interest rates low, and therefore drag on Sterling.

Currencies tend to weaken against counterparts with higher interest rates as investors use carry methods to profit from the arbitrage or simply exchange and park capital in the currency with the higher interest rate.

But after hefty rises at the end of last year, these two sectors still look on track to provide a 0.2 percentage point contribution to GDP growth in Q1, larger than Q4’s 0.1pp contribution.

Of course, these sectors only account for around 20% of the economy and the Markit/CIPS services PMI suggests that the services sector lost some momentum at the start of the year.

But they should nonetheless prevent GDP growth from slowing too much in Q1.