Pound Lower v US Dollar Amidst Euro Sell-Off

The pound to dollar exchange rate has fallen sharply against the US dollar following some poor domestic data and a euro sell-off.

We note the euro is suffering significant selling pressure at the time of writing while the US dollar and the Japanese Yen are bid higher.

It would seem that in this environment the British pound is caught in the crossfire - the pound to dollar exchange rate conversion is quoted at 1.5435.

This is the lowest level of exchange seen in 5 months.

“Cable is under pressure following a 0.6% m/m unexpected decline in May manufacturing production; on the daily charts, 1.5430 looks to be the next significant level before an air pocket below that where 1.5200 looks to be the next major support level,” notes TD Securities in Toronto in a brief to clients.

Asmara Jamaleh at Intessa Sanpaolo points out that movements in the euro will matter for the pound / dollar exchange rate:

“The BoE meeting on Thursday will be another non-event, and the trend of the GBP/USD exchange rate will continue to show a positive correlation in the next  few days with that of the EUR/USD, albeit with the pound still at an advantage in direct comparison to the euro.”

Note: All FX quotes here are from the spot markets - your bank will charge a spread when delivering currency for international payments. However, an independent provider will get you closer to the market rate via a tighter spread.

They can also monitor movements on your behalf, thereby ensuring the delivery of up to 5% more currency in some instances. Find out more.

UK Production Slips

The pound was sent lower on the back of news manufacturing production in May slipped back by 0.6% - analysts were expecting growth of 1% suggesting a hoped for bounce back in growth would be announced.

The data echoes the Manufacturing PMI figures announced at the start of the month that confirmed a slowdown running up until June.

It appears the slowdown in the UK manufacturing sector is more entrenched than many had been expecting.

Indeed, there remain signs that the elevated level of the pound to euro exchange rate continues to impact on the export of goods to the Eurozone.

Add to this a lack of confidence already existing in the Eurozone and we can start to build a picture that suggests the UK economy will have to rely on its own consumer base to achieve growth over coming months.

The Bank of England will take note of the data and could well see this as a sign that the UK economy is losing momentum and could thus hold back on that first interest rate.

Markets are currently pricing sterling for a first raise around May 2016.

Any indication that the lift-off date is pushed back will see the pound exchange rate complex re-priced lower and we could well see the pound to dollar exchange rate (GBPUSD) look to retest the 1.50 level.

Momentum is currently pitted against the GBPUSD and those with currency requirements should make decisions on this observation.