Sterling rises on a weak Dollar and higher manufacturing output

The British Pound rose more than 1.0 percent against the greenback to its highest in two weeks on Tuesday, spurred by the dollar's broad fall and helped by a higher-than expected increase in UK industrial production. UK manufacturing output rose 0.9 percent in July, its fastest rate in one and a half years, on a sharp pick-up in car production. The gain was much higher than forecasts for a 0.3 percent increase. The wider measure of industrial output, which includes energy production, rose by 0.5 percent on the month. Last month, UK central bank not only surprised markets by expanding its asset buying programme by a larger margin than expected, but minutes of the meeting showed governor Mervyn King and two others voted unsuccessfully for an even larger increase. The GBP/USD is currently trading at $1.6485 as of 8:44am, London Time.

The euro gained against the dollar before a report forecast to show French industrial production rose for a third month in July, adding to evidence the region’s economic recession is easing. “Risk appetite is coming back on the table, supporting the euro,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The euro is also benefiting from uncertainty about the U.S. economy. The euro-zone is likely to see a hike in interest rates before the U.S. does.” The euro extended yesterday’s gain as economists surveyed by Bloomberg News said the Paris-based statistics office Insee may report factory output in France gained 0.4 percent in July after rising 0.3 percent in June. The data is due tomorrow. The EUR/USD is currently trading at $1.4485 as of 8:54am, London Time.

UBS AG, the world’s second-largest currency trader, lowered its forecasts for the dollar against currencies such as the euro and the pound, citing improving risk appetite and gains in stocks. The dollar will weaken to $1.45 per euro in a month, compared with a previous forecast of $1.40, and it will fall to $1.63 per pound, versus an earlier prediction of $1.57, Mansoor Mohi-Uddin, chief currency strategist at UBS in Zurich, wrote in a research note today. “The combination of risk-seeking U.S. investors diversifying their portfolios and equities rallying further will keep the U.S. dollar weak near term,” Mohi-uddin wrote. “We lower our one- and three-month forecasts for the greenback.”

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