UK manufacturing figures released on Tuesday by the Office for National Statistics, disappointed investors as they were well below expectations. Sterling has been riding high against the US dollar and Euro, has traders have digested the strong macro data, with the expectation the Bank of England will raise rates early than their current prediction. Today’s release unexpectedly missed forecasts which led to Sterling being offered in the FX markets, following last week’s multi-year high for cable. The manufacturing data slumped the most in 16 months, though some analysts have highlighted these figures are out of line with the recent strong PMI figures, so they could be an anomaly.
Though disappointing figures, this is a single data point, with traders reacting to each release as they attempt to predict the timing of the first BoE interest rate hike. The earliest expectations are for a Q4 2014 hike, with the consensus a more conservative Q1/2 2015 as the first increase.
(ONS press release, Index of Production, May 2014)
Key data points for sterling
NIESR GDP 3 month estimate for July, released today at 15:00 (London)
BoE rate announcement on Thursday 10th July, the expectation is for a vote by the MPC to leave both interest rates and asset purchases unchanged
UK ILO unemployment on Tuesday 15th July
The Bank of England minutes for the MPC meeting held on 9th and 10th of July to see if any of the MPC members surprise markets and voted to raise rates, and if the committee hints at policy tightening timing
Traders have highlighted the 1.7010 as an important level of resistance, which this morning’s move broke straight through. Cable traded to a low of 1.7084, weakening by over 60 pips from session highs. Cable has already recovered some of the kneejerk move following the release, with the pair looking oversold on an hourly timeframe on the RSI (25.7).Over the longer-term GBP has potential to trade higher with an improving economy and is likely to be one of the first countries to raise interest rates following the financial crisis.