Cable Crumbles to 11 Week Low
UK Industrial Production missed badly printing at –0.5% versus forecasts of just a small decline of –0.1%.
The much worse than expected results from the UK industrial sector sent pound tumbling to an 11 week low and raised the possibility that the BoE may be forced to lower rates another 25bp at tomorrow’s meeting of the Monetary Policy Committee.
While consensus estimates call for UK monetary policy to remain stationary keeping rates at 5%, tonight’s weak results from UK manufacturers suggest that the UK economy may be decelerating far faster than most analysts expected.
The news is especially troubling for UK monetary authorities because manufacturing was considered to be the one bright spot in the UK economy with UK producers enjoying the benefits of record high EURGBP exchange rates which helped them to gain a competitive edge in the EZ market.
However, today’s news indicates that the last bastion of strength in the UK economy may have given way, increasing pressure on the BoE to begin easing sooner rather than later despite lingering concerns about inflation amongst most of the MPC members.
In fact cable may test the 1.9500 figure later in the North American session if traders begin to anticipate a surprise rate cut from the BoE tomorrow.
fvarga
May 8, 2008 at 3:32 am
The US dollar has been weakening against the UK pound for several years, reaching a record high for the pair. In fact if we go back to 1984, when the pair were virtually at parity ( one pound was worth just over one dollar), the US dollar has been in a steady decline since, and as recently as December 2007 reached the all time high of almost 2.12, a level not seen before. As a currency trader, the question I am always asked is where do I believe the currency is heading in the future - a critical question if you are thinking of buying and holding US dollar assets long term, or paying for these assets in US dollars. Naturally there are many factors which affect the long term relationship but my current reading of the charts would suggest that if the pound breaks below 1.93 then it is likely to weaken further to 1.75 in the medium term.