Pound recovers after shock manufacturing data

United States Dollar:

Sterling slipped across the board yesterday, as the latest Manufacturing Production figure undershot expectations by some distance. With the sector to expand by 0.4% compared to April, the release showed an unexpected fall of -1.3%. The corresponding Manufacturing PMI released on 2nd June had shown a slight fall from 57.3 to 57.0, so this result was very much out of the blue and caught the markets off-guard. On the news, cable gapped from 1.7145 to 1.7085, its lowest level this month. The year-on-year growth, which was expected to be 3.2%, came out at just 2.3%, badly affected by the steepest drop in output since Jan 2013. The news would have dented the hopes of those hoping for a 2014 interest rate rise – however, the result was quickly forgotten and probably written off as an anomaly, given the recent stream of positive UK data releases. GBP/USD quickly retraced the losses to get above the 1.71 level, and currently trades at 1.7120. The move back up was helped by a solid Q2 GDP estimate from the National Institute of Economic and Social Research who predicted expansion of 0.9% for the UK from April-June in their monthly release yesterday afternoon.

The main event today will be the FOMC meeting minutes, due at 7pm tonight. Traders, investors and other interested parties will closely scrutinise the release and will be looking for any signs on how close the Fed are to lifting interest rates. There is growing sentiment that Fed officials are becoming more confident about the recovery, so it will be interesting to see if the tone is more hawkish this time around. If this be the case, we’re likely to see the dollar firm up, which would present possibilities for GBP/USD to fall back below 1.70. It is, of course, an ‘if.’

Euro:

EUR/USD dipped to a low of 1.3588 yesterday morning after German trade balance printed weaker than expected. There were also a few comments from various ECB officials that sounded on the dovish side, and this did not help. Come the afternoon, the US dollar started to weaken and EUR/USD recovered off of its morning low. It broke back through 1.36 and went on to trade to an overnight high of 1.3630. The move was accelerated by EUR/GBP buying, having been prompted by the weaker than expected UK manufacturing data released yesterday morning. There’s little by way of European economic data due today, but ECB President Draghi is due to make a speech later tonight, but as it will not be long after the Fed minutes, the effects of his comments may be fairly muted. EUR/USD opens this morning above the 1.36 figure at 1.3615.

Aussie and Kiwi Dollars:

NZD/USD continues on the front foot this morning, buoyed still by Fitch’s decision to affirm New Zealand’s AA rating (and the outlook being raised to positive). AUD/USD has been steady overnight and during the last 24 hours. Chinese CPI released overnight printed pretty much in line with expectations and didn’t have much of an impact on the Aussie dollar. Westpac Consumer Confidence was fairly positive, but didn’t have too much of an impact on the currency.