British Pound Soars, GBP Boosted by Manufacturing and Industrial Production Data
- Written by: Gary Howes
-
The pound sterling (GBP) enjoyed a positive day's trade on Tuesday thanks to positive data out of the UK's manufacturing sector. Weakness does however continue to be seen vs the AUD and NZD.
Pound sterling today: Manufacturing data due
On the data front trades will be watching the release of Industrial Production (YoY) (Feb) at 09:30. A reading of 2.2% is expected.
Manufacturing Production (YoY) (Feb) is also due, look for 3.1%.
While this will provide interest early on we doubt we will be offered enough to break recent ranges, particularly vs the EUR and USD.
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Where does Tuesday leave us?
- "The pound rallied against the dollar after data showed U.K. industrial output rose by 2.7%(y/y) in February, well above the 2.2%(y/y) forecast. The data revived expectations of an early 2015 rate hike from the Bank of England, a theme that should support the pound as long as upcoming data continues to surprise to the upside." - Omer Esiner at Commonwealth Foreign Exchange.
- "For the pound to sustain its appreciation it will have to successfully clear hurdles lined up Wednesday in U.K. trade figures and the release of the minutes from the Fed’s mid-March meeting. The Bank of England concludes a two-day meeting Thursday but is not expected to adjust policy." - Joe Manimbo @ Western Union.
16:18: GBP-USD moving into overbought territory
The GBP's rally against the USD could be in danger of over-extending itself according to Alastair McCaig at IG:
"Today’s price action has seen GBP/USD hit a new three-week high, and has put a fresh effort to tackle the $1.38 level on the agenda. Although it is at the top end of the RSI range, GBP/USD has not quite moved into overbought territory, but is this looks imminent."
15:30: US dollar is hammered, forward guidance is working
The story of today has to be the heavy selling of the USD. Kathy Lien at BK Asset Management tells us this is a sign that the Fed's Forward Guidance is working:
"Investors continued to unwind their long dollar positions this morning with the greenback trading lower against all major currencies. Tapering by the Federal Reserve should have been positive for U.S. yields and for the dollar but all the gains incurred since Janet Yellen's first meeting in March have now been lost.
"Policymakers will be happy to see yields back up and the dollar weaken because it means the market understands that monetary policy remains extremely accommodative despite their reduction in asset purchases. In other words, forward guidance is working."
14:41: IMF sees UK as fastest growing advance economy
In its World Economic Outlook, the IMF forecast UK growth of 2.9 pct this year, the fastest in the G7 group of leading economies, and 2.5 pct cent in 2015. It also raised the UK forecast by more than any other advanced economy, almost doubling the 2014 prediction it gave a year ago.
A lot of publications are focussing on the u-turn sounded by the IMF over the UK's austerity policy.
The IMF now says, "the government’s efforts to raise capital spending while staying within the medium-term fiscal envelope should help bolster recovery and long-term growth."
But, there are concerns over the recovery being unbalanced - too much consumer spending and not enough production. Today's manufacturing data will be welcomed within this context.
13:44: Sterling soars
The pound dollar rate is a whopping 0.7pct higher now - at 1.6729.
Even pound / Canadian dollar has shifted up a notch taking the 1.83's again.
Sterling is higher vs the EUR to the tune of 0.4 pct and is at 1.2136.
12:50: Carry trade sends AUD and NZD higher
One of the highlights on global markets at present is the strength seen in the Australian and New Zealand dollars. Jeremy Cook at WorldFirst tells us why these currencies are being bid higher:
"In the short term we expect that carry trade fundamentals will continue with the high-yielding currencies of the emerging markets and those of AUD and NZD within the developed market doing well at the expense of some of the more staid options.
"At the time of writing AUD is on a tear, attempting to bust above 0.9300, while NZDUSD remains only 60 pips from its highest level since August 2011. AUD has risen by close on 4% in Q1 – it’s best quarter since 2011 – but we maintain our view that the Reserve Bank of Australia will not tolerate a weak USD allowing the AUD to move higher, and will take options to loosen its currency."
11:55: The lie of the land for Cable and EUR-GBP
"The Cable picks momentum on the upside. Yesterday’s close above 1.6590/1.6600 suggests the extension of gains as long as 21-dma holds (1.6593). EUR/GBP consolidates weakness below 50-dma (0.82820), the selling interest remains. Option barriers with today expiry are placed at 0.82850/0.83000." - Swissquote.
11:32: Bank of England interest rate decisions at end of 2014
The Bank of England will start considering changes to interest rates at the end of this year argue Bank of America Merrill Lynch:
"The BoE is universally expected to leave interest rates and QE on hold this week, with the economic backdrop for it arguably the most comfortable since prior to the financial crisis. In aggregate, evidence suggests that the UK economy continues to grow at around the 2.5-3.0% annualised pace experienced over the last year, despite a moderate easing in some survey indicators of late (eg, the PMIs). With the unemployment rate still elevated at 7.2% though and CPI inflation now a little below its 2% target, the BoE judges that it has space to let the recovery build some more before actively considering raising interest rates.
"Indeed, its original Forward Guidance of not considering raising rates until the unemployment rate reaches 7% currently still applies. Some significant personnel changes at the BoE between its May and August Inflation Reports - with Bean, Fisher & Dale all exiting, to be replaced by Shafik, Haldane and a new member (not yet announced) - also add to the view that barring any exceptional events, the BoE might not seriously start to consider raising interest rates until at least late this year."
11:07: Key levels for Cable
Cable is rallying and the below analysis is thus a bit dated. However, the levels are nonetheless useful. Swissquote Bank say:
"GBP/USD is experiencing some buying interest close to the support implied by the rising channel (around 1.6538). The hourly resistance at 1.6621 (02/04/2014 low) is challenged. Other resistances can be found at 1.6684 and 1.6718 (see also the declining trendline). Another support stands at 1.6460.
"In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6460 holds. Another key support stands at 1.6220 (17/12/2013 low)."
10:11: "Getting back on the bull train"
Sean Lee says markets will look to start backing the UK currency from here:
"This time it was industrial output coming on top of the strong export survey overnight. Looks like the cable might be getting back on the bull train especially with the USD weakening across the board? EUR/GBP has broken below technical support, another bullish GBP sign.
"I certainly wouldn’t be buying breaks but buying dips looks like the way to play cable in coming sessions."
09:45: Sterling powers ahead
Today's beat in Industrial and Manufacturing production has really aided the British pound. We are seeing gains against the EUR of 0.33%, this is just what was needed to break the deadlock.
The GBP-USD has shot higher by nearly 0.6%. However, gains against the AUD and NZD are harder to come by.
09:30: Data beats expectations
Industrial Production (YoY) (Feb) comes in at 2.7%, ahead of expectations of 2.2%.
Manufacturing Production (YoY) (Feb) comes in at 3.8%, expectations were for 3.1%.
08:30: Lloyds warn of potential for further British pound weakness
Lloyds Bank Research tell us:
"Today's industrial production release for February will provide the domestic focus. The market is expecting a modest acceleration in the pace of industrial activity. Our economists forecast a greater rise in industrial production driven by a rebound in oil and gas extraction, with manufacturing activity expected to post only a small rise on the month, reflecting the recent softening in the PMIs. In such an outcome, this will likely be net neutral for GBP.
"GBP long positions are likely to have pared back slightly following the disappointing PMIs last week. However, we suspect GBP longs are still at extended levels, therefore in the absence of some positive GBP news, a softer GBP tone may well continue. The 1.6540 area remains good initial support in GBP/USD."
08:15: AUD, NZD advance
The UK currency is under pressure against the Aus and NZ dollar's today as the two currencies find relief alongside global equity markets which suffered a torrid Monday session.
Overnight: EUR/GBP in tight range, but French budget bid could hurt EUR
Telegraph: Bundesbank President has warned that the credibility of the eurozone's budgetary rules is at stake and that France's suggestion that the bloc's budget deficit targets be weakened are a "test case" for the rules.
"It's vital that we stick to these rules, because the credibility of these rules is at stake," Bundesbank president Jens Weidmann said "A currency union needs its members to aim for stability... Part of that is having an orderly budget and part of that is sticking to agreements."
France's new finance minister, Michel Sapin, said last week the country would seek a review of its deadline for meeting the EU's budget deficit ceiling of 3%. "France is a test case for the credibility of these new rules," Mr Weidmann said.
Considering the potential impact on the euro poudn exchange rate are the team at FXMarketAlerts:
"On FX some focus on the above warning from ECB/Buba hawk Jens Weidmann. The concerns over weaker budget targets and tensions, could weigh on EUR, EUR/Crosses. Given warning over the credibility.
"EUR/USD at 1.3744-45, focus on more ECB, Eurozone policymakers comments on budget rules and ECB policies. Ofers 1.3750-60, bids at 1.3720-40, stops below.
"EUR/GBP at 0.8270-728, range of 0.8270 to 0.8275 - just 5 pips. Focus still on key support at 0.8240. Stoploss below. Offers 0.8300-10."
