Pound Sterling Strengthens despite Weaker-than-Expected Manufacturing Output

January 4, 2016 - Written by John Cameron

STORY LINK Pound Sterling Strengthens despite Weaker-than-Expected Manufacturing Output

British Pound Strengthens against Nearly All of its Major Peers Today

Despite the fact that British economic data showed that manufacturing output in December failed to meet with expectations, the Pound advanced versus many of its currency rivals. December’s UK Manufacturing PMI was forecast to advance from 52.5 to 52.8, but the actual result unexpectedly dropped to 51.9. The Sterling appreciation was initiated by traders taking advantage of the Pound’s comparatively weak trade weighting following a disappointing end to 2015.

Also aiding the Pound’s uptrend was positive results from other domestic ecostats. November’s Mortgage Approvals, Net Consumer Credit and Net Lending Securities on Dwellings all bettered the respective median market forecasts.

Sterling strength is forecast to be short-lived, however, as we draw closer to the referendum on the UK’s membership to the European Union. Many businesses have expressed concerns that if the UK votes to leave the EU foreign business investment will wilt dramatically.

GBP/EUR Exchange Rate Edges Higher after German Inflation Unexpectedly Declined

Although the Euro started the European session in a position of strength thanks to US Dollar weakness, the Pound Sterling to Euro (GBP/EUR) exchange rate edged fractionally higher by around 0.1%.

The single currency depreciated in response to December’s German Consumer Price Index which came in at 0.3% on the year, missing the median market forecast rise from 0.4% to 0.6%. In addition, the EU-Harmonised German Consumer Price Index missed the market consensus of a rise from 0.3% to 0.4%, with the actual result dropping to 0.2%.

The low rate of inflation in Germany has prompted many analysts to predict that the European Central Bank (ECB) will be looking to expand bond-purchases in the hope of stimulating price pressures.

GBP/USD Exchange Rate Trending Narrowly on US Dollar Profit-Taking

The Pound Sterling to US Dollar exchange rate was trending within a limited range on Monday afternoon ahead of US manufacturing data.

The US Dollar began the European session in a downtrend, thanks to trader profit-taking following a significant surge on Sunday in response to positive sentiment from Federal Reserve Vice-Chairman Stanley Fischer. Fischer stated that the new tools introduced to support the recent benchmark rate hike have proved to work, easing some internal tensions.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts Pound Sterling Forecasts