Sterling heads for first week of declines in four

Pound sterling was lifted Friday by data showing Britain’s trade deficit narrowed more than expected in October, although the pound remained on track for its first weekly decline in four.

The currency was hit this week by lawmakers saying they would stick to Prime Minister Theresa May’s Brexit timetable and by weaker-than-expected industrial output data.

Friday’s data showed construction output fell slightly on the month and continued a downward trend in the three months to October. The narrowing in the trade deficit was partly because of big upward revisions to previous months.

The pound edged up to $1.2620, from $1.2599 just before the data. By 1040 GMT it had slipped back to $1.2603, leaving it up 0.1 percent on the day, down more than 1 percent against the dollar for the week.

“The data was certainly much better than expected… However some of that optimism does dry up when you start to look at some of the revisions,” Rabobank currency strategist Jane Foley said.

“The improvement has come from a low base so that does dampen some of the enthusiasm. That said, many people will be wanting to look forward and take the October data as one of the first true reflections of the post-referendum environment.”

Sterling also edged up against the euro to 84.245 pence, adding to around 1 percent gains on Thursday after the European Central Bank’s extension of its asset-purchase programme. But for the week, the pound was down half a percent.

The pound is now trading around 15 percent lower against the dollar since Britain voted to leave the European Union, and about 10 percent weaker against the euro.

Some investors and currency strategists say the pound’s close historical links to the dollar, through trade and investment, favour sterling against the euro and other currencies at a time when dollar strength is back on the cards.

While uncertainties surrounding the launch of talks on leaving the EU will continue to weigh heavily on the pound, the UK remains better placed to generate growth than other European countries or Japan.

“The resilience of the UK economy is also highlighting the similarities in the UK and U.S. economic cycles, (with) cyclical lows in unemployment rates, strong consumer spending and finally rising wage growth,” MUFG’s European head of global markets research, Derek Halpenny said.

Source: Reuters