Foreign Currency Report : GBP USD Rate Drops Again as Data Shows that US Factory Output Avoided a Contraction Last Month

Published: Friday, 2 September 2011 09:33 BST - Written by John Cameron

STORY LINK Foreign Currency Report : GBP USD Rate Drops Again as Data Shows that US Factory Output Avoided a Contraction Last Month

The Pound Euro exchange rate (GBP EUR) is 1.1368. The Pound Dollar exchange rate (GBP USD) is 1.6189. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5149.

Currency investors switched their focus to the state of the global economy yesterday, as a slew of data releases caused market participants to adjust their expectations for the continuance of the global recovery.

The key release for the day came in the States, with August’s ISM Manufacturing Survey results. The data showed that manufacturing output in the world’s leading economy had continued to expand, confounding expectations that the numbers would show that America’s factory output had contracted during last month. However, although it beat expectations, the figure was not universally positively received, as it showed that the expansion in US manufacturing was slowing.

However, the US data was generally well-received by the markets and positive sentiment towards the Greenback was heightened with last night’s release of the mid-year fiscal budget review by the White House. The review predicted that the US economy would avoid a much talked-about double dip recession to expand by an annualised 1.7% this year. Support for the Dollar saw the GBP USD rate trade down to 1.6131, its lowest level for almost four weeks. This pair will be given fresh impetus later today with the release of August’s key Non-Farm Payrolls figure in the States.

Meanwhile, the UK’s PMI Manufacturing Survey for August printed at 49.0 yesterday, its lowest level for some 26 months. The reading below 50 means that UK factory output shrank last month, raising question marks about the continued recovery of the British economy. Of particular concern for investors holding Sterling-denominated assets, was that the manufacturing figures showed that UK manufacturing exports fell at their fastest rate since the first half of 2009. It would appear that the Bank of England’s tacit policy of ‘talking down the Pound’ in order to promote the UK’s beleaguered export sector does not appear to be working.

Elsewhere, Spanish/German and Italian/German bond spreads have once again widened this morning as market participants fret about the Eurozone’s ongoing sovereign debt situation. This is bad news for the Euro and if Europe’s single currency comes under further selling pressure, then the GBP EUR rate could make a run at its 13-week high of 1.1613 at some stage over coming sessions.


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