Pound Sterling trades lower against its major competitors as the recent rally corrects from overbought conditions with some of the move justified by the latest official manufacturing data.
Traders were seen booking profits on the recent rally in GBP levels having noted the heavy selling pressures that meets the currency in the run up to 1.20 against the Euro and anywhere north of 1.34 against the US Dollar.
The decline comes after three weeks of gains for the UK unit which saw the UK currency starting to look tired and overbought.
"With much of the recent bounce being positioning related, the current rally looks to be an attractive opportunity to be considering shorting the unit if not against USD then on commodity crosses & EUR," says a currency strategy note from Citibank.
Indeed, a note just in from Lars Henriksson, FX Strategist at Handelsbanken, shows he thinks the rebound in GBP is now finished as his studies indicate the Pound is now close to fair-value levels.
A trigger to the profit-taking can be found in the day’s only major economic data release - that of Manufacturing and Industrial Production performance from the ONS.
The headline Manufacturing Production number read at -0.9% on an annualised basis in July, worse than the -0.4% forecast.
Industrial Production for the same period read at 0.1%, ahead of the -0.2% forecast.
Manufacturing output therefore fell at the fastest monthly pace in a year in July. The 0.9% drop was the third consecutive monthly fall and confirms the hit to activity delivered by the Brexit vote which was flagged in the PMI surveys for the same month.
The fall was fairly broad-based, with 9 out of the 13 sub-sectors contracting on the month.
Despite the miss on expectations, the data does confirm the post-referendum apocalypse some had expected did not materialise.
While the weakness in the manufacturing sector is likely to reflect some Brexit uncertainty, the survey evidence has since improved.
Following an initial post-referendum slump, the August Markit/CIPS manufacturing PMI rebounded, suggesting that manufacturing output will pick up again in August.
“The doom-mongers are being forced to eat humble pie at the moment. Industrial production has remained resilient in the aftermath of Brexit, probably thanks to the weak pound, and businesses are getting on with doing business,” says Dennis de Jong at UFX.com.
de Jong believes the data represents something of a double-edged sword for Mark Carney who appears before the Treasury Select Committee on Wednesday 7 September.
“On the one hand he will be pleased to see solid production figures, however it also calls into question the Bank of England’s decision to ease monetary policy further,” says de Jong.
de Jong adds, “no-one had any idea what would happen if Britain voted to leave the EU, but at present the waters seem pretty calm.”
British Pound Struggles at Noted Resistance Points
We wrote earlier this week that Sterling was likely to struggle in the approach to 1.20 against the Euro; it appears that this call has been quite accurate.
Robin Wilkin at Lloyds Bank Commercial Banking says Sterling could now decline to noted support levels having again failed to extend to the upside on a move to new recent highs, with a minor reversal pattern being registered in the candle charts.
This, combined with momentum unwinding from overbought, risks a stronger correction towards 1.1841 intra-day support, with a break there opening 1.1744 and support below.
With regards to the GBP/USD exchange rate Wilkin notes:
"An important day ahead for the GBP, with IP and BoE testimony, especially as we are testing the range highs.
"A break of the 1.3480 region should open the way to our 1.3650-1.3850 target region, but while under some caution is warranted."
Key intra-day support lies in the 1.3345-1.3260 region, with a move back through here negating the current bull bias and returning us to a range environment, with the 1.3050 region support below.