The British Pound falls as the UK's PMI comes out weaker than expected

The Pound fell on Tuesday, wiping out early gains versus the euro after a surprisingly weak reading of UK manufacturing cast doubt on the UK economy's recovery prospects. An index of British manufacturing activity fell to 49.7 in August from a downwardly revised 50.2 in July. It fell short of expectations for a rise to 51.5, and came in below the 50 level that divides expansion from contraction. "The numbers have dashed hopes that the worst may be over for sterling," said Paul Robson, strategist at RBS in London."It's far too early for people to think that sterling's troubles are behind it. There are other better currencies around whose central banks are more likely to raise interest rates." Tuesday's figures added to the view the Bank of England will keep rates at a record low of 0.5 percent for the months to come in an effort to boost the ailing economy. The GBP/USD is currently trading at $1.6130 as of 8:51am, London Time.

The JPY traded high against the euro on concern U.S. financial institutions will incur more losses and as regional shares fell, renewing demand for the relative safety of Japan’s currency. The yen was close to its strongest level versus the dollar in more than a month after U.S.-based CIT Group Inc. deferred interest payments on subordinated bonds and as lower profit targets at Japanese companies sent shares lower. “There are lingering worries about the health of the U.S. banking sector,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The bias is for the yen and the dollar to be bought.” The EUR/JPY is currently trading at 132.18 as of 8:55am, London Time.

Overnight bank deposits at the European Central Bank inched lower, data showed on Wednesday, although commercial banks are still holding on to a lot of the extra cash the ECB has pushed into markets to encourage lending. The ECB and the 16 euro zone national central banks are also buying euro-denominated covered bonds debt backed by a pool of assets such as mortgage loans that remain on the issuing bank's balance sheet over the next year, from both primary and secondary markets. The EUR/USD is currently trading at $1.4224 as of 9:07am, London Time.

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