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Pound Stumbles As Deficit Swells

Published: 20 Dec at 4 PM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Forex, Euro Crisis, UK, Economy,

Earlier this week the Pound was riding high as impressive UK employment data and rising domestic retail sales added to the brightening picture of the UK's economic recovery.

Sterling posted notable gains against peers like the Euro and was in a stronger position against the US Dollar despite the North American asset turning bullish following the Federal Open Market Committee announcement on Wednesday.

However, on Friday Sterling started to back-track as the run of impressive UK data came to an end.

Firstly, the GfK measure of UK consumer confidence unexpectedly fell for a third month, slipping from -12 to -13 rather than rising to -11 as forecast.

While acknowledging that a one-point decline may not appear like much, a GfK official asserted; 'What matters is that the index has fallen for three months in a row, and we can say there is a downward trend. With no media coverage of bad economic news—and indeed continuing coverage of good news—the explanation for the last quarter of declining confidence most likely results from people's sense of how well or rather badly-off they personally feel.'

This disappointing result was followed by the news that the UK deficit expanded in November, widening to 16.5 billion Pounds in November from 15.6 billion Pounds in the same period of the previous year.

Although separate data confirmed that the UK's economy expanded by 0.8 per cent in the third quarter the Pound still slid against the US Dollar.

The British currency also declined against the Euro as the common currency was supported by a better-than-expected consumer confidence report for the Eurozone.

In spite of the patchy nature of the Eurozone's return to growth the measure of confidence still climbed from -15.4 to -13.6, considerably better than the gain to -15 expected by economists.

Next week Pound movement is likely to be limited as Christmas festivities take precedence in the Northern hemisphere.

Before the European session came to an end on Friday the Pound was trading against the US Dollar in the region of 1.6358 and was trading against the Euro in the region of 1.1968.
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