UK Output Stumps Sterling

12 June, 2018

Simon Eastman

Yesterday, having been fairly flat trading levels on GBP/EUR for some time, started what could be the sign of things to come.

Manufacturing and Industrial production figures came in much lower than forecasts causing an immediate sell-off the pound against all the major pairings. The figures for manufacturing, dropped to -1.4% from an expected 0.3% from the previous month, while industrial production dropped to 0.8% from the expected 0.2%. This shows a big slump in production from those sectors, adding further woe to the UK economy, struggling with uncertainty over Brexit. Added to these poor stats, we also had total trade balance drop to -£5.28 billion down from the forecast -£2.5 billion, showing that the balance between what we are importing and exporting grew even more than was expected, pushing us further into the red as an economy.

As a result, we saw sterling slump over half a cent against the euro and just under a cent against the dollar, before managing to claw back some of the greenback losses by the close of trade. Against the euro, we broke a key resistance floor, but without managing to sustain the breakthrough, we saw a slight correction.

We have a heavy week of data coming, with unemployment and average earnings data due out at 9.30am this morning, so anything but better than forecast readings will likely see a further slump for sterling. The meeting between President Trump and the North Korean leader Kim Jon Un is also set to take place today in Singapore which is another uncertain political pressure for markets. Depending on how the meeting goes, we could see investor sentiment waver and safe haven trading occur, where the US dollar could be a likely beneficiary. As such, if you have a currency transfer to make from sterling in the coming days or weeks, it would be prudent to contact one of the team today to discuss the tools available to mitigate your risk.