Pound falls further following poor industrial output
The pound has been having a torrid time since the turn of the year as it hit a five-and-half year low against the dollar after weak UK industrial and manufacturing production data. At one point the pound traded at 1.4364, down a cent and a half. Industrial output (MoM) fell to -0.7% from 0%, while manufacturing production also came in below expectations for the month of November to December clocking a reading of -0.4%, showing a second month of shrinkage.
The poor data also caused the Pound to take a beating from the Euro too, as the pair now trades within the 1.3300 range. There may be further woes for the pound come on Thursday as Carney and his team of rate setters post their decision on whether to hike rates or not, alongside the Monetary Policy Statement.
Speaking yesterday, Bank of England chief Mark Carney played down fears that the UK’s economic recovery has been based on an unsustainable credit boom. Carney said “this is not a debt-fuelled recovery”. He acknowledged that household debt levels are still relatively high, but points out that the private sector has been reducing its borrowing from around 130 to 140 per cent (of GDP) over recent years from over 200 per cent in 2008 and that we are now in a “more normal risk environment.” He also warned that a hike in borrowing costs would still hurt reckless borrowers.
Though the Euro has been performing well against the pound, against the Dollar it has been under constant pressure. Expectations of today’s industrial data will not help its cause with a forecasted 0.2% drop (MoM) in November, a back track from the 0.6% growth printed in October, while Year on Year growth has also pared back to 1.7%, from a 1.9% reading in October.
Today we have more Fed officials speaking. Charles Evans and Eric Rosengren will be delivering their thoughts on the outlook for monetary policy and growth. Both are seen as more dovish members, and if they indicate that 3-4 hikes are forecast this year, the markets could interpret the overall Fed as being much more hawkish, promoting further Dollar strength.
Data to watch: 10.00am EUR Industrial Productions (MoM) & (YoY). 7pm Fed’s Beige Book.