GBP Hit Hard by Underwhelming Economic Data

The British Pound Sterling (Currency:GBP) will on Wednesday find direction from a number of significant data releases on the trade, industrial and manufacturing production front. However, the US remains a key focus for currencies while decisions based on technical levels of resistance and support will remain key for short-term moves in GBP.

Today's exchange rates:

• The pound euro exchange rate is 0.45 pct lower on a day-to-day basis at 1.1797.
• The pound dollar exchange rate is 0.87 pct lower at 1.5945.
• The pound Australian dollar exchange rate is 0.9 pct lower at 1.6916.
• The pound New Zealand dollar rate is 0.77 pct lower at 1.9250.
• The pound South African Rand exchange rate is 0.61 pct down at 15.9850.

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16:50: Sell GBP and USD, buy EUR. CHF and AUD

Bank of America Merrill Lynch have collated the results of all their FX research together to help provide some clarity to G10 FX investors beyond the high current uncertainty.

This is what Athanasios Vamvakidis has to say:

"We connect the dots of our recent FX research publications and a number of analytical tools we have been using in our FX research.

"Our analysis supports being long EUR, CHF, AUD and NZD, and short USD and GBP. Our analysis is neutral on JPY, CAD, NOK and SEK. The strongest signals are for long EUR/USD."

"Short GBP is supported by fundamentals, both our last month’s and last week’s flows, technicals and a loose monetary policy. The only positive factor includes trend and positioning quant indicators." We will be publishing more details tomorrow. Visit us again then!

16:38: Could the Bank of England shock the GBP higher tomorrow?

The British pound remains under pressure ahead of Thursday's next challenge - the Bank of England MPC interest rate and quantitative easing decision.

No changes are expected. BUT - this is not to say the event will likely be event free.

Shaun Osborne at TD Securities explains:

"The BoE tomorrow should be a non-event with no change to the policy rate or the asset purchase program.  The one clear risk is that this is the month they decide to start releasing their monthly statements—leaving some potential for GBP shock."

14:47: Pound predicted to continue downward bias

Matt Weller at GFT on the near-term outlook for the pound dollar exchange rate:

"The GBP/USD reversed strongly to the downside over the last 24 hours. The primary catalyst for the recent drop was a combination of general strength in the USD following Yellen’s nomination and weak Manufacturing data out of the U.K.

"Moving forward, the pair may continue lower from here, given the technical break below 1.60 and recent Bearish Marubozu Candle."

14:32: Be patient before buying more sterling

Sean Lee at FXWW says the time to buy back into the pound / dollar exchange rate will come. All that is required is patience.

Lee says:

"I remain very bearish on the USD and my pair of choice for trading this view is still the cable.  Remember the market always feels terrible on the way down but by Christmas I feel that sub-1.60 levels will have become a distant memory.

"If the move from 1.6260 to 1.6010 was the first wave of a typical 3-wave retracement, then I would expect this second wave to run out of steam near 1.5870. This is where I will start buying (unless it’s in vertical collapse for some reason). The really strong technical support is at 1.5700/50 and that’s where I expect any falls to run into a brick wall of support.

"I think it’s reasonable likely, given present momentum, that 1.6050/70 will cap in the short-term and that we will see a test of that first level at 1.5870, but as always, be sensible and wait and see what the market looks like when it gets to your level."

11:52: Business credit conditions point to an increasingly confident UK economy

While the ONS data on manufacturing stole the show today, we must consider the Bank of England's credit conditions data.

John Cridland, CBI Director-General, responds:

“Business confidence appears to have reached a tipping point and is beginning to translate into greater demand from firms for finance to invest. And it’s good news that the overall availability of bank finance has increased to support this.

“It’s also encouraging to see businesses are looking more broadly to alternative sources of growth finance, as well as traditional bank loans.

“To keep up this momentum, the Government should continue to co-invest in proven alternative finance options, like private placements and invoice financing, through its business bank.”

11:12: British pound peaks as the UK economy peaks, all eyes on MPC tomorrow

Boris Schlossberg at BK Asset Management on today's disappointing data:

"Today's news shows that the rebound in manufacturing sector may have hit a brick wall. That along with the recent slowdown in PMI indices signals that UK recovery may have peaked in the summer."

"Tomorrow's monthly MPC meeting may prove to be especially important to the currency market.

"UK monetary policymakers have been decidedly dovish even in the face of improving economic data and have come under criticism for being too accommodative."

09:43: Major sell-off in pound sterling

The British pound is being sold off in aggressive fashion following today's data. The GBP/USD graph tells the story:

09:30: UK data disappoints across the board

A slew of data misses released by the ONS:

Manufacturing Production (YoY) (Aug) misses the target: Actual -0.2%, consensus forecasts 1%. But better than last month which read at -0.3%.

Goods Trade Balance (Aug) also misses expectations: Actual £-9.625B, £-9.000B forecasted. Better than last month at £-9.941B.

Total Trade Balance (Aug): Actual £-3.320B, consensus forecasts for £-2.050B. Previous at £-3.449B.

Manufacturing Production (MoM) (Aug): Actual -1.2%, expectations were for 0.4%. Last month 0.2%.

Industrial Production (YoY) (Aug): Actual -1.5%, -0.6% Consensus, previous -1.1% (Previous Revised from -1.600).

09:00: Data releases at the bottom of the hour, but US remains key

Despite today's data releases, Lloyds Bank Research say the key driver for GBP/USD will remain the US:

"There are a number of UK releases this morning; industrial production and trade data could see some interest. The market is expecting IP to rise by 0.4% m/m, and a narrowing in the trade deficit in August; which should be supportive for GBP.

"However, we expect GBP/USD to remain driven by developments from the US and the lack of progress on budget negotiations suggests GBP/USD should remain biased to the upside, and we see good initial support around the 1.60 level."

08:45: What markets are expecting from the ONS today

At 09:30 the Office for National Statistics release a host of data:

Industrial Production (YoY) (Aug). Consensus forecasts are for -0.6%. An improvements on last month's -1.6%.
Manufacturing Production (YoY) (Aug). Consensus forecasts are for +1%. Last month read at -0.7%.
Total Trade Balance (Aug). Forecasts at £-2.050B. Last month = £-3.085B.
Goods Trade Balance (Aug). Forecasts = £-9.000B. Last month  = £-9.853B.