Foreign Exchange Rate Forecasts: Sterling falls (again) after poor Manufacturing Output

Good afternoon. I’m afraid to say the Pound has fallen further against both the Euro and US Dollar since my post last week. In today’s column I’ll look at the reasons why rates have fallen further, in addition to what data is being released in the coming days that could further impact the rate. So to summarise what we'll look at today:

Pound falls after poor Manufacturing Data
Sterling/Dollar falls after better US jobs data
What might affect the rate in the coming days
How to acheive the best possible exchange rates

The pound has fallen against the dollar and the euro this morning, after official figures showed UK manufacturing output fell by 1.5% in January from the month before. The drop came after a slight rise in December. This latest news increases the chance of the UK heading into a triple dip recession, and that is why the Pound has fallen further.

Immediately after the news Pound/Euro rates fell to 1.1370, and Pound/Dollar fell to 1.4840. We have since seen a slight recovery this afternoon, but not by much.

Meanwhile, the National Institute of Economic and Social Research have said UK economic output contracted between December and February by 0.1%. They have also revised their estimate for the three months to January from flat to a contraction of 0.2%.

The UK economy contracted in the final three months of 2012, and the UK will be back in recession if economic activity shrinks this quarter. Economists said the manufacturing figures increased the chances of the UK falling back into recession.

In turn this would mean further Quantitative Easing for the UK, and it’s also likely other rating agencies would downgrade the UK which would push the Pound lower still.

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Late last week we had the latest non-farm payrolls data from the USA, which looks at the total jobs created excluding the agricultural sector (due to its seasonal nature). The numbers showed 236,000 were created, and the forecast was only 161,000. As the number was so much better than expected, the US Dollar gained strength and became more expensive to purchase, pushing rates lower.

This combined with the shaky UK and EU economies really do cement the dollar as the safe investment of choice, and so further strength could be likely.

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Economic data is released every day, and if it’s better or worse than forecast, it can affect exchange rates quickly and without warning. For more information on how these releases could affect the exchange rate you’re interested in, get in touch with me today.

So what data is coming in the next 48 hours? Well on Wednesday, we have some inflation data from the EU and also the latest EU Industrial Production figures. Over in the United States we have Trade Balance numbers, and also Retail Sales which are a good overall barometer of economic activity.

On Thursday we have the Bank of England monthly bulletin, which provides regular commentary on market developments and UK monetary policy operations. Often comments from the BoE can affect the value of the Pound.

We also have the European Central Bank giving a report that contains a detailed analysis of the prevailing economic situation and the risks to price stability.

Contact me to find out how this data could affect you.

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