LONDON: Sterling slipped against both the dollar and the euro on Thursday after data showed the UK goods trade deficit widened unexpectedly in May, pushed up by high imports of aircraft.
The Office for National Statistics said the goods trade deficit grew to just over 9.2 billion pounds from 8.8 billion pounds in April. Economists in a Reuters poll had forecast a slight narrowing to 8.75 billion pounds.
"Today's data is a little disappointing - the deficit is wider than expected. But if you look into the details, both imports and exports have increased," said Ian Stannard, a currency strategist at Morgan Stanley.
"That does suggest increased activity in the UK, so that should limit the downside (for sterling), particularly in a currency environment where volatility is still very low and international liquidity is still ample."
The pound fell to a session low of $1.7111 after the data from $1.7131 beforehand, down a quarter of a percent on the day. The euro strengthened 0.2 percent to a high of 79.69 pence.
Traders had been waiting to see whether minutes released on Wednesday from the U.S. Federal Reserve's latest monetary policy committee meeting would deviate from Fed Chair Janet Yellen's dovish approach and offer an indication of when the bank might start to raise interest rates from their current historic lows.
But they found little to suggest the central bank will move its first rate hike forward, currently expected in the middle of next year. The minutes did confirm the Fed's bond purchases would probably end in October.
Expectations that the Bank of England will increase interest rates before its peers in Europe and North America were therefore kept on track, despite a run of soft UK data this week which showed factory output slowing and the housing market starting to cool.
The BoE concludes its two-day Monetary Policy Committee meeting on Thursday and will announce its interest rate decision at 1100 GMT. It is widely expected to keep rates unchanged at record lows, although expectations are growing it may tighten policy before the year's end.
"Sterling has become a firm market favourite, underpinned by the looming prospect of monetary policy normalisation owing to an economic recovery of surprising strength, which contrasts starkly with that of the euro area," strategists at the Bank of New York Mellon said in a morning note.
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