GBP Exchange Rates: Pound Down vs Euro and Dollar, Hit by Industrial and Manufacturing Data Miss

Sterling is highly sensitive to data at present and this week's Industrial Production and Manufacturing Production data dealt a blow to those holding out for a higher rate of exchange.

We see the following levels on offer as we head through the final session of the week:

• The pound to euro exchange rate (GBP/EUR) is 0.30 pct lower on yesterday at 1.2559.
• The pound to dollar exchange rate (GBP/USD) is 0.20 pct lower at 1.6800.
• The pound to Canadian dollar (GBP/CAD) is 0.21 pct lower at 1.8356.
• The pound to NZ dollar (GBP/NZD) is 0.09 pct higher at 1.9876.
• The pound to Australian dollar (GBP/AUD) is 0.02 pct higher at 1.8162.

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Has the UK Growth Rate Peaked?

At the present time economic stats are key to currency valuations, and unfortunately for sterling the messages are rather mixed.

UK Industrial Production and Manufacturing production data both missed their mark with the former coming in at 0.3% vs. 0.6% eyed and later printing at 0.3% versus 0.7% forecast.

Manufacturing output slowed to only 0.2% growth on a 3 month basis versus 1.1% the period prior.

"Cable was slammed to 1.6830 and remained near the session lows as the prospects for an early BoE rate hike grow dimmer and dimmer with UK growth appearing to have peaked earlier this year," says Boris Schlossberg at BK Asset Management.

Compare this to earlier in the week when, following the release of strong Services PMI, Markit's Chris Williamson commented that the data confirms the UK economy is still booming and the Bank of England will be taking note and the excuses for keeping interest rates at record lows are fast running out.

It would appear then markets are content to play the pound on a per data release basis at present, expect volatility to continue.

Outlook for GBP

UK trade data will be of some interest today, "but the deficit has broadly fluctuated in an 8-10bn range for the last few years, so unless the data is outside this range there is unlikely to be much GBP impact," say Lloyds Bank Research.

Next week’s Inflation Report should now be the main UK focus, although the labour market data next week will also be of interest.

Eurozone growth slipping up once more

We would expect dips in the British pound to euro exchange rate (GBP/EUR) to be shallow at best - if currencies are to be valued on the outperformance of their economies then the Euro is in a spot of trouble.

German Factory orders gauge slipped to -3.2% versus 0.5% eyed sending the euro dollar pair down to a test of 2014 lows.

"The continued pressure from the crisis in Ukraine is clearly starting to take its toll on German industry as business sentiment sours and demand wanes. The drop in Factory orders was the worst decline in three years suggesting that growth in German manufacturing sector is likely to contract materially this month," says Schlossberg.

Today's data indicates that overall EZ growth may be moving back to zero with periphery economies such as Italy already back in recession.

"If Germany, which is the locomotive of the region, is unable to revive demand in the foreseeable future, the ECB may be facing a much greater policy challenge in H2 of this year and may be forced to expand its extraordinary measures far beyond its initial intent," says Schlossberg.

US dollar remains well supported

Meanwhile, the US dollar retains a solid footing right across the breadth of the currency market place.

"Investors favoured the dollar, especially against its higher yielding rivals amid a broad flight to safety in global financial markets. Reports of 20,000 Russian troops amassed along the Ukrainian border spooked investors yesterday and sent riskier investments tumbling," says Omer Esiner at Commonwealth Foreign Exchange.

The move higher in the greenback comes despite a slide in Treasury bond yields- also a result of investors’ piling into safer investments.

"The dollar remains well supported by strong domestic economic data, like yesterday’s ISM for the services sector and factory orders for June, both of which were much better than forecast and contrasted the very weak economic backdrop in the euro zone," says Esiner.