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That is for sterling and the UK economy as Industrial production for January and manufacturing output came out much weaker than expected. Industrial output was -0.4% month on month and manufacturing output was -0.9%. Thus we have more negative feedback on top of yesterdays negatives to further reinforce the selling pressure on sterling. Gordon Brown was also speaking this morning on the UK economy; he affirmed that the recovery is in the early stages and remains fragile. There will be a budget in 2 weeks time which will set out more detail on deficit reduction- certainly needs to. As we have discussed sterling needs some clarity and so do the credit rating agencies.
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The consolidation period for Sterling did not last too long and overnight in Asian trading and so far this morning it has been under selling pressure again. The reason for the fall today has again been attributed to narrowing polls showing that Labour and conservatives are “neck and neck”. In addition credit rating agency Fitch has stated that the UK sovereign credit profile has deteriorated and Moody’s has warned that some UK banks could face downgrades. To top it off we have received poor economic data with UK RICS house price balance coming in weaker than expected and the UK January trade balance was also weaker than anticipated. The pound has crashed back through the 1.50 level against the USD and is testing the 1.10 level on the euro.
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Sterling has started the week above 1.51 against the USD and over 1.10 against the euro as it looks to continue consolidating after suffering heavy losses last week. Sterling was cushioned by improvements in consumer confidence and UK PMI which showed gains in the UK service sector. The FTSE also climbed to an 18 month closing high on Friday and pushed over 5600 this morning before falling back a little. The recent economic data from the UK and the not so bad non-farm payrolls is helping to allay fears of a double dip recession- could this lead to further rallies in the equity markets? If so we can expect to see the return to confidence accompanied by selling pressure on the USD and the JPY, some gains in the GBP and EUR and more broadly in the commodity currencies such as the AUD, ZAR and CAD.
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Yesterday it was announced that the BoE were keeping interest rates on hold at 0.5% and the asset purchase programme was held at £200 billion. The stronger PMI data this week and the improvement in the revision of Q4 2009 GDP has helped the MPC to be comfortable in their current wait and see policy. An article in the Telegraph interestingly pointed out that if it was not for QE the UK would still be in recession- could well be the case. The fact that there was no expansion helped to keep sterling supported just over 1.50 against the USD and 1.10 the EUR- we really need to see a move beyond 1.52 before we can start to relax a little.
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Not much movement overall yesterday on Sterling as the markets paused on selling the pound. This morning we have in fact made some gains back and as we stand we are holding just above the key 1.10 level and 1.50 on GBP/USD. The 1.50 level on GBP/USD is a crucial level to hold above and will help to steady the ship and prevent further selling pressure. This morning we have seen UK PMI data come in much stronger than expected rising to 58.40 compared to the 55 expected and giving the best reading for over 3 years. On top of this consumer confidence rose to 80 and a 2 year high as consumers look ahead to a brighter 2010 for the UK economy. The good data this morning was a huge breath of fresh air for sterling giving it a welcome break from the selling momentum. Read the rest of this entry »

After being sold aggressively across the markets yesterday the markets have taken a breather and we now await the next move. First let us dissect why the drop in sterling which fell over 2% against the USD pushing it to a 10 month low. Well the focus is political with the opinion polls over the weekend indicating that the chances of a hung parliament were much higher- so why does this cause a problem? A hung parliament may actually prove successful, however the markets do not like uncertainty and the consensus is that a coalition government will have less political clout to push through the decisive decisions especially in relation to tough fiscal planning which is inevitable.
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