Poor Manufacturing numbers cast doubt over UK recovery

Manufacturing output in the UK recorded a surprise fall of 1.3% in May, the biggest decline since January 2013.The figure from the ONS was much weaker than economists' forecasted as they were predicting an increase of 0.4%.Manufacturing data and surveys so far this year have indicated that the sector is growing robustly. However, the wider measure of industrial output also fell in May, the ONS figures showed, dropping by 0.7%.Admittedly, it is a rough report for manufacturing, especially after the great PMI results last week. The ONS had no explanation for the drop and it was seen across the whole sector, so there’s no finger pointing at the moment.Sterling dropped in value against the greenback in early morning trade yesterday when this news materialised into the forex markets and the pairing fell through 1.7100 breaking support at 1.7090.This is a fine reflection that the UK is not over its economic crisis as of yet. The important part of the story is that exports in UK have weakened in Q2 this year with domestic investments significantly dropping in the country so the real questions are:

• Is sterling overvalued against some of its major counterparties?

• Could this be the start of USD strength that has been forecasted for this year?

• Has the growth of the UK economy only been fuelled by international investors?

• Will Mark Carney procrastinate even further withan interest rate hike?

To Europe, where there was no economic data out from the Eurozone yesterday or today so expect another quiet day for all Euro currency crossings. Similar to the move on GBPUSD, the GBPEUR exchange rate dipped in early morning trade to 1.2550 but then moved back up towards resistance levels as they day progressed. Friday brings CPI figures from the powerhouse economy of Germany which is expected to come out with an improvement of 0.1% from lasts months figure reading at 0.4%.

The rebound the US Dollar mounted through the second half of this past week was an opportunistic move derived as much from market conditions as fundamentals. To keep its favourable trajectory, the greenback needs to find more tangible endorsement. With this new trading week, there is potential that the passing of the seasonal low in volatility associated with the Independence Day holiday – within the ‘summer doldrums’ – can in turn shake loose the contentedness seen with the historical drop in activity measures over the past months and years. It will be very interesting to see if Janet Yellen starts to talk up the strength of the greenback at the FOMC minutes this evening so you might see some volatility in overnight trading. The dollar is trying to claw back positions against the euro and achieve that phycology level of 1.35 but its having no luck as it closed the London session at 1.3613 the dollar market is screaming out for tangible elements to fight off the resilient and overvalued euro.