Sterling suffers as manufacturing output falls whilst Fed downgrade outlook for US economy
02/Aug/2012 • Currency Updates•
Sterling dropped against the dollar in yesterday’s session as a spate of poor data was released from the UK. The manufacturing output figure fell in July at its fastest pace for almost three years. This data confirms a retraction in the size of the UK economy over the last three quarters, shedding fresh gloom over the prospects of sterling against all but the beleaguered euro for the short term. Yesterday we also saw UK PMI drop as critics suggested we would not see the much sought after Olympics boost as trade in central London has actually dropped for this time of year.
A final sour note out of yesterday’s spate of data was the Nationwide housing figures which showed housing prices in the UK had fallen at their fastest annual rate in the last three years. All eyes are now on the BOE rate setting meeting which will be closely watched.
One day ahead of the European Central Bank’s monthly policy, the euro lost ground against the dollar as Eurozone manufacturing plummeted in July, tipping to a 37-month low. The news was especially poignant as even figures out of Germany and the resilient Austria were down. Elsewhere, Greece agreed to further spending cuts in order to meet the conditions of its next round of bailout funds. At the ECB meeting today it is expected that its main lending rate will be left unchanged at 0.75%, with any change likely to cause volatility. Last week ECB President Mario Draghi increased hopes that the central bank could resume its bond purchase programme, to help lower borrowing rates in Spain and Italy, after his comments that he would do everything necessary to preserve the euro.
The Greenback made advances against most of the majors yesterday as the Fed held back on further QE and announced no new stimulus measures for the US economy. Correspondingly, shares were hit on this need. Interest rates were also held, although Ben Bernanke hinted he may act soon. Bernanke’s rhetoric was downbeat for the prospects for the US economy as his disappointment over slow progress in reducing the nation’s jobless rate showed and their economic outlook was downgraded. The dollar index, which measures the Greenback against a basket of six other currencies, climbed marginally following the ADP payroll figures showing a rise in private sector payrolls for July, before fading later in the session. Eyes will be on Friday’s Non-Farm Payroll figures to build on this positive number.