Stronger Manufacturing Data Sees British Pound Holds Gains Against Euro and Dollar
- Written by: Gary Howes
Pound sterling has advanced against the euro and US dollar as UK mid-week data beats expectations.
The pound is looking stronger against its two major trading partners, the euro and US dollar in mid-week trade.
The pound to dollar exchange rate back above the 1.42 support level while the pound to euro exchange rate back above 1.28, half a percent higher than at last nights close.
Fresh buying interest comes on the back of Industrial and Manufacturing Production data from the Office for National Statistics which beat analyst forecasts.
The pound has been stuck in a tight range against both the US dollar and euro of late and we continue to watch for a break-out.
Will today’s data trigger the move out of recent ranges?
Manufacturing and Industrial Production Numbers Stimulate Buying Interest
Manufacturing Production data for January showed growth of 0.7%, higher than the 0.2% forecast.
The rise was driven by a surge in manufacturing output and energy production, partly offset by a sharp fall in oil and gas extraction.
A lot of these movements simply reflect monthly volatility: the rise in energy production was payback from the fall in December due to above average temperatures, and oil and gas output was affected by stormy weather in the North Sea.
Industrial Production expanded by 0.3%, analysts had expected 0.5%. Nevertheless, the annual number of -0.1% was much better than the forecast -0.7%.
Alongside a mixed run of recent business sentiment surveys, which had pointed to a risk of a slowdown in economic activity in Q1, these figures, following on from strong January retail sales, suggest that concerns about the potential fallout from a slowdown in global growth may have been overdone.
“After a sharp fall in manufacturing production for December, nobody was expecting heart-racing figures for January. Today’s data is at least a reassurance that there are some signs of life in the sector and, although slightly below expectations, is possibly enough to stop the pound from plummeting like it did last week,” says Dennis de Jong, Managing Director at UFX.com.
Latest Pound/Euro Exchange Rates
  | Live: 1.1448▲ + 0.04%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1059 - 1.1105 |
**Independent Specialist | 1.1288 - 1.1334 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Given the steep decline in February’s PMI figures, though, this revival may be short lived.
“The data is also unlikely to distract investors from the looming fears of a Brexit and plenty will be tuning in to George Osborne’s budget next week to take a further health check on the UK economy,” says de Jong.
Fall in Pound Sterling to Support Production in 2016
We suspect the decline in the value of sterling since December 2015 will certainly be aiding that portion of the industrial sector that exports.
Scott Bowman, UK Economist at Capital Economics, agrees:
“The more recent depreciation of trade-weighted sterling and our expectations of a pick-up in world growth in 2016 should slightly improve the manufacturing sector’s fortunes as this year progresses.”
Analysts at Lloyds have also picked up on the potential for a pick-up in export demand going forward.
"The surveys also suggest that this resilience reflects domestic rather than export demand, although the pass-through from recent sterling weakness could provide a further boost."
Nonetheless, Lloyds believe the softer global backdrop looks set to continue to limit the prospect of a significant near-term uptrend in industrial output.
