British Pound Pushed Lower On Stimulus Speculation
Falling to as low as 1.5339, the British pound continued to sell off through the New York session on speculation that the Bank of England may elect to increase the amount of stimulus at its scheduled meeting tomorrow. Although the market majority remains steadfast in its belief that additional stimulus may still be a few months off, there remains a possibility given today’s economic releases. Pound sterling is now trading lower by almost 140 pips or 0.89% at 1.5344 against the US dollar.
According to the Office for National Statistics, the UK trade deficit widened in the month of November, led by an increase in imports. Exports for the country fell by 1.5%, led by a decline in consumer goods traffic. Imports, on the other hand increased by 1.1%, producing a net shortfall of 8.64 billion pounds. The increase in imports was widely seen as a product of increased crude oil consumption – as well as a record pace of chemical intake. The monthly figure was wider than the estimated 8.4 billion pounds and builds on October’s 7.87 billion pound figure.
The UK trade deficit report was paired with a survey that showed retail price increases slowed to a rise of only 1.7%, the lowest in almost a year and a half in December – according to the British Retail Consortium. The slight increase was lower than the 2% increase in November, and is reflective of a slowing inflationary environment.
Notably, the retail sales price report does lend some impetus for action by central bankers. Previously, policymakers fearing a rapid mounting of inflation – given previously record high price increases – were hesitant of adding further stimulus to the economy. But, with growth tepid, and inflationary pressure alleviating, current conditions are more conducive to another round of monetary stimulus, if so decided. The added amount of stimulus could debase the UK currency further – likely adding to pound selling in the afternoon.