The pound is mixed this morning, gaining against the euro, but consolidating against the dollar as investors’ opted for the safety of the US currency before EU leaders gather in Brussels today. Sterling also found support after data showed the UK trade deficit narrowed in October on increasing exports as demand soared from the countries outside the European Union. The trade gap fell to 7.56 billion pounds from 10.2 billion in September as exports rose 9% in October, while imports fell 1.5%. However, economists are warning that UK exports remain “particularly vulnerable” to weaker Eurozone economic outlook. In addition, the statistic office said producer prices rose 0.2% in November from October. Annual factory gate price inflation slowed to 5.4% in November from 5.5.7% in the previous reading. Expect for the pound to remain driven by market risk aversion as EU leaders gather in Brussels today.
The euro gained against the dollar during morning session after Eurozone leaders increased the rescue fund and agreed to tighten the budget rules to tackle the debit crisis. The single currency was supported after officials agreed to add 200 billion euro to their rescue fund and to tighten anti-deficit rules within its member states. The only country to refuse to back the new treaty regulations was Britain as new rules do not give them the exclusive right to have an exclusive veto on future financial regulations. The single currency managed to pair some of its recent loses against its major rivals as market participants recognize that EU leaders have made progress and moved from point blank. Separately, German CPI figures were released today, showing that inflation in Europe’s largest economy slowed in November on worsening economic outlook. The inflation rate declined to 2.8% from 2.9% in October, confirming that consumer prices remain subdued as Eurozone debt crisis hampers growth.
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