UK manufacturing data accelerates the pound’s fall

The manufacturing industry in the UK expanded at a slower rate in June according to data released this morning.

The survey that measures the level of activity in the industry recorded a strong figure for the month but it was noticeably down from May. This marks a slower pace of growth with foreign demand for UK products easing. In particular demand from the eurozone is waning as its financial troubles deepen. The data has given the markets further impetus to sell the pound, which is again falling sharply today heading further away from its recent high near 1.24.

Duncan Higgins, senior market analyst at Caxton FX comments, "Although growth in the manufacturing activity has slowed, the industry is still expanding at a strong rate, supporting hopes that the economic recovery is on course. The doubts could begin to creep in later this year though as the spending cut proposals and tax rises are felt."

The data has accelerated sterling's losses, which has now fallen around 1.75% against the euro in the past couple of days.

"It isn't too much of a surprise to see sterling coming off its highs. The market had priced in much higher demand for three-month ECB loans, which were offered yesterday. Although the funding issues in the Southern European banking sector are still very much apparent, the market may have exaggerated the situation and oversold the euro," Higgins adds.

Following the data release this morning, the pound has fallen back down toward €1.21 and is currently hovering near $1.49 against the US dollar.

However, Higgins concludes, "Looking ahead, we do not anticipate that the euro will find much support, and its rally today hardly marks a shift in confidence. At present our outlook remains that the pound should hit €1.25 by August."