Sterling given a glimmer of hope by UK production figures

After sliding to a five-month low this morning, sterling has been given a slight nudge higher after UK monthly production figures stayed in positive territory.

Data revealed that manufacturing output held at 0.3% in September for the fourth consecutive month, beating expectations that called for a fall to 0.1%. The data, though not a giant leap from forecast, has helped to undo some of the damage done earlier in the day by the Halifax housing price index.

Sterling dropped down as low €1.1359 after Halifax revealed a fall of 3.6% in UK house prices last month. The pound has staged a minor rally following the production data but price movement will remain volatile with both the BoE and ECB due to announce policy later today.

Duncan Higgins, senior analyst at Caxton FX comments, "With all the negativity surrounding the UK economy at present, even a figure that is only marginally above expectation raises a glimmer of hope. The pound has been broadly sold on the prospect of further quantitative easing and although a single figure is not going to shift sentiment, neither will it encourage the notion."

"The production figures are also supportive from the perspective of third quarter economic growth. It is the second month in Q3 that has exhibited an expansion in production levels, which should provide some support to GDP over the period," continues Higgins.

At 1.14 the price is still looking vulnerable to the downside, particularly whilst quantitative easing is on the table.

Higgins concludes, "Even with the current high levels of inflation, it will not take too many disappointing figures to tip the balance in favour of additional monetary easing. Whilst the Fed, the Bank of Japan, and the Bank of England continue to entertain the stimulus option, the euro looks set to remain in favour."