- Rob Wood, chief UK economist at Berenberg
The cable continued its appreciation on Wednesday, as the Sterling was boosted by the stronger-than-expected trade figures from the U.K. The pair is now approaching this year's high at 1.6822, and it seems that Janet Yellen's comments were not convincing enough to provide a substantial boost to the greenback.
The ONS said trade deficit narrowed in line with forecasts, recovering from the unforeseen sharp expansion a month earlier, when the gap more than doubled from the 34-month low posted in December. February's trade deficit stood at 9.1 billion pounds from 9.4 billion a month earlier. Figures showed that imports plunged 2.2% to 32.6 billion, offsetting a 1.6% decline in exports, a level which is the lowest since November 2010. At the same time, imports hit their lowest since April 2011. On a quarterly basis a similar situation is seen, as both imports and exports fell 4.7% and 2.5% respectively. Last month, during the budget speech Chancellor George Osborne pointed out that combined goods exports to such countries like Brazil, India and China have risen sharply, suggesting that "many lost years will catch up". Exports of the nation's services remain the only sub-segment that generates a surplus and help to offset weak performance of other sectors. While trade figures were welcomed by markets, they suggest that the economy is far away from rebalancing, as current growth is boosted by a stronger demand for housing and a decline in the savings rate.
© Dukascopy Bank SA