LONDON, Sept 9 (Reuters) - Sterling climbed on Friday, on track for its fourth straight week of gains against the dollar, as investors trimmed bets against the currency ahead of data that could show the country’s yawning trade gap shrinking in July.
Figures due at 0830 GMT are expected to show that the overall trade deficit eased to 11.75 billion pounds from 12.40 billion pounds as exports outpaced imports.
Exports are expected to have got a boost from the weaker pound following June’s shock Brexit vote. Analysts expect the cost of imports to rise for the same reason, but with a slightly delayed effect.
Adam Cole, head of G10 strategy at RBC Capital, said that while exports will rise as a result of sterling’s fall, import prices will rise “sharply and quickly”. “Because imports are bigger than exports, the deficit will get worse, though this may come through to a greater degree in the August data than today’s July release,” he added.
Sterling was higher at $1.3310 early on Friday but trading well below a seven-week high of $1.3445 struck on Tuesday. It was flat against the euro at 84.70 pence , having struck a one-week low of 84.95 pence on Thursday after ECB President Mario Draghi disappointed some investors by saying European Central Bank policymakers had not discussed an extension of its asset purchase plan.
British construction data for July is also due for release on Friday and could show a contraction in activity after the Brexit vote. Traders said a sharp drop could weigh on the pound.
“We still like being short sterling/dollar and long euro/sterling as the pound’s bounce runs out of steam,” said Kit Juckes, currency strategist at Societe Generale.
Sterling has been weakening since Wednesday, when Bank of England Governor Mark Carney reiterated to lawmakers that the central bank remained ready to take “whatever action is needed” to help the economy weather the aftermath of the Brexit vote.
On Wednesday, weak British manufacturing output data for July painted a less rosy picture of the aftermath of the June 23 EU referendum, serving a reminder to investors about the risks lurking.
The data were the first official figures to cover output solely for the period after the vote. Britain was plunged into political chaos in the weeks after the vote and before the formation of a new government under Prime Minister Theresa May. (Editing by Catherine Evans)