By: Susan Wade
In March the pound rose against the US dollar, pulling the currency combination from eight-month lows.
The pound increased following the release of information that showed that the UK's trade deficit had narrowed more than expected over the course of January.
The effect of the trend was intensified by market attitudes towards the dollar, which cooled ahead of the economic reports that American is set to release.
The Pound Rises as the Dollar Falls
The trend that we are seeing within the market is an interesting one, due to the duality of phenomena influencing both the pound and the dollar.
Within the UK, recently released economic data has caused national confidence to surge, a trend reflected in investors' attitudes towards the pound. The country’s trade deficit has narrowed more than expected, and brokers like OANDA have seen increased faith in the country’s government and its policies prompt traders to turn to the currency as a safe haven.
At the same time, investors have backed away from the greenback ahead of the release of American economic reports, which are expected to be less than promising.
These events caused the GBP/USD pairing to hit 1.5014 during Thursday’s European morning trade, subsequently consolidating at 1.4984 – a gain of 0.39 per cent.
The Situations behind the Statistics
The UK data that so many traders have acted on was taken from a report released by the Office for National Statistics. This document revealed that the country’s trade deficit had fallen from £9.93 billion in December 2014 to £8.41 billion in January 2015, a dramatic drop of £1.52 billion, or a little over 15 per cent.
The figure for December had previously been overstated at £10.15 billion. This was expected to drop to £9.7 billion by January, meaning that the actual figure is an impressive 13 per cent lower than predicted.
This caused a much hoped for increase in the value of the pound, which had fallen on Wednesday following the publication of manufacturing production data showing a 0.5 per cent decline during January. This was particularly disappointing, as a 0.2 per cent increase had previously been estimated. Industrial production had also fallen by 0.1 per cent, despite also being prophesied to rise.
This reversal of fortunes for the UK currency came at the same time as increased uncertainty over the future of the US dollar, prompted by the imminent release of US retail sales and jobless claims data. Although the currency rallied last week on the back of a strong employment report, the economy is expected to be painted in a less than rosy light by the awaited data.
With the American currency looking set to experience further falls, and the UK economy looking increasingly strong, this trend looks set to continue for the foreseeable future.
Susan is an experienced finance blogger with forex as her forte. Her flair for financial topics is best reflected by her posts on social trading. She herself is a big advocator of social trading which gives traders an opportunity to take their power of analysis several notches higher