Sterling reaches 3-year low against dollar after dismal manufacturing figures
10/Jul/2013 • Currency Updates•
Sterling crashed to a three-year low yesterday against the dollar. This was primarily due to weaker than expected data from the UK’s industrial sector which in turn has raised the prospect of even looser monetary policy. The Office for National Statistics (ONS) said that UK manufacturing and industrial production were unexpectedly poor in May, weighing on sterling.
The official data on the UK’s industrial prospects where expected to show growth. However, disappointingly, they showed a contraction in the manufacturing sector of 0.8% In May; the fastest pace of fall since January.
Sterling has fallen not only against the dollar but against a basket of other currencies since mark Carney became governor of the bank of England last week and banks monetary policy committee indicated quantitative easing is set to continue in the near future.
Despite this negative data out of the UK, the IMF upgraded its growth forecast for 2013. This means Britain is set to grow quicker than Germany and other European economies.
Little to no data out of the UK today or for the week ahead.
The dollar rallied yesterday as diverging strategies from central banks continued to dictate market sentiment. The dollar index, which measures the greenback against a basket of six currencies, rose as high as 84.753; the strongest since July 2010. A downgrade for Italy saw EUR/USD hit a three month low while worse than expected factory and output data pushed GBP/USD briefly to a three year trough. Even with the IMF marking down growth expectations this year by 0.2% to 1.7%, it did not scale back the demand for the greenback.
With little data releases yesterday, today is expected to be far more volatile with the release of the FOMC minutes. This information will hopefully enlighten us as to when the Fed feels the time is appropriate to scale back its bond buying programme after weeks of speculation. With many forecasters predicting it could start the tapering as early as September, the demand for dollars continues to increase.
EU outlook continues to look bleak and lags behind the recovery curve that appears to be slowly building in the US. S+P cut Italy’s credit rating to BBB+, which did not help the Euro late on yesterday evening. The Euro took another tumble yesterday, with the currency fell to a 3 month low against the dollar after the ECB’s Asmussen clarified that rates in the EU will stay low for an extended period – in excess of 12 months.
Other news not helping the Euro was the fact that the IMF cut its 2013 global growth forecast to 3.1% from a 3.3% prediction made in April and cut its 2014 growth forecast to 3.8% from 4.0%.
With regards to economic figures its generally a quiet day for the euro with all of the major data being released yesterday.