Cable Crushed as Data Disappoints

Posted on

Market Drivers for October 9, 2013
UK MP/IP misses sending sterling below 1.6000
Dollar rebounds on Yellen nomination
Nikkei -.39% Europe 0.4%
Oil $103/bbl
Gold $1319/oz.

Europe and Asia:
AUD Westpac -2.1% vs. 4.7%
GBP BRC -0.2%% vs. -0.5%
UK MP/IP -1.2% vs. 0.3%

North America:
USD FOMC Minutes 1400 EST

Cable was crushed today in morning London dealing after both Trade Balance data and Production numbers missed their mark signaling that UK Manufacturing sector may be starting to slow and sending sterling below the key 1.6000 support level.

Both UK Manufacturing production and Industrial production missed consensus estimates badly with the former printing at -1.2% versus 0.3% eyed and the latter at -1.1% versus 0.2% forecast. These were the worst readings in more than a year suggesting that Q3 GDP growth may be hampered by the manufacturing sector. Declines were led by pharmaceuticals, computer electronics and food and beverage output, according to the ONS.

UK economy has been a shining star in the G7 universe this quarter as it produced upside surprises in almost every economic report suggesting that growth was likely to rebound strongly in the second half of this year. Indeed just yesterday the IMF raised its forecasts for UK by more than any other G7 nation. However, today news shows that the rebound in manufacturing sector may have hit a brick wall. That along with the recent slowdown in PMI indices signals that UK recovery may have peaked in the summer.

Therefore, tomorrow’s monthly MPC meeting may prove to be especially important to the currency market. UK monetary policymakers have been decidedly dovish even in the face of improving economic data and have come under criticism for being too accommodative. However, today’s data shows that their caution may have been warranted and if they continue to assume a dovish posture cable could weaken further and slip below the 1.5900 level as the week proceeds.

Meanwhile elsewhere the calendar remains quiet, but the dollar saw a boost today from the news that President Obama will nominate Janet Yellen to the Fed Chairmanship later today. Initially the greenback weakened on the assumption that Ms. Yellen is a well known dove and therefore likely to maintain QE policy for the foreseeable future. However, the relief from the uncertainty over monetary policy especially given current political stalemate over the US budget, ultimately proved positive for the greenback and it rallied against both yen and euro.

In North American session today the calendar only carries the FOMC minutes which are likely to be diminished in their importance due to the Yellen nomination which will follow the release. The bigger focus will remain on Washington DC. If the markets begin to perceive some sort of a solution in the making then greenback could rally further with EUR/USD testing the 1,3500 level while USD/JPY tries to climb above 97.50 as the day proceeds.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *