Sterling pounded as euro plummets and deficit widens

Dragged down by the euro's Grecian woes, the pound gets hammered after a surprise jump in the UK trade deficit.

Last Updated: 31 Aug 2010

With Greece on its Peloponnese, and Portugal and Spain allegedly not far behind, it’s no surprise that traders and hedge funds are betting big against the euro: new figures suggest those pitiless hedgies have accumulated short positions (i.e. bets that its value will drop) totalling $7.6bn. That’s the biggest ever short on the single currency, which ordinarily would be a good reason to hold off booking your summer holiday. Unfortunately, the euro’s freefall seems to dragging the pound down with it – not helped by today’s figures on the December trade deficit, which show a surprise jump to £7.3bn. As far as the UK is concerned, ‘there but for the Greece of God’ seems to be the market view.

Official figures out this morning show that the UK trade deficit – the gap between the value of the stuff we import, and the value of stuff we export – widened from £6.8bn to £7.28bn in December, its biggest jump for nearly a year. Since the City had actually been expecting the gap to narrow in December, this was more than a little disappointing – particularly as the weakness of the pound was supposed to push up exports. Throw in the BRC’s lacklustre January sales figures, and it all suggests that the UK economy remains in a pretty feeble state.

In recent weeks, our one consolation has been that at least things are even worse in the eurozone. With speculation that Greece may default on its sovereign debt without a bail-out, and Spanish ministers rushing to London to reassure investors that they’re in no danger of following suit, traders have been piling in against the euro in a big way, pushing it to an eight-month low last week. But amid rumours that the EU has apparently drafted a rescue plan for Greece, even the euro rose against the pound this morning. Not a great endorsement of our economic prospects.

Elsewhere, the big news in the City is the sudden and largely unexpected exit of Hector Sants as chief exec of the Financial Services Authority. Sants insists that he only ever intended to serve three years in the post, but the move has inevitably been linked with the Conservative plan to abolish the FSA if they get into power this year. After all, it can’t be easy running a company that’s been marked for demolition – and presumably he’d have no trouble finding a cushy (and much better paid) berth in the private sector.

That said, rumour has it that the Tories like Sants and want him to move across to the Bank of England if they win the Election.  Since he’s an ex-City man (at Credit Suisse) who was in charge of supervising wholesale markets in the years leading up to the financial crisis, cynics might wonder how he manages to command such widespread approbation...

In today's bulletin:

Sterling pounded as euro plummets and deficit widens
Snow blamed for 'awful' January sales
BSkyB swallows £350m loss on ITV stake
Graduate jobs down just 9% in 2009
The value of battle-scarred execs

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