British Pound surges as manufacturing production rises

May 12, 10:03 am

The British Pound continued its bullish momentum after data released by the Office for National Statistics (ONS) showed that manufacturing production for the month of April saw activity increase 0.4%, above estimates of 0.3%. There was more positive news for the British Pound as previous month’s manufacturing production was also revised higher to 0.5% from 0.4%. The rise marks one of the fastest pace of growth in the past few months and continues to support the Pound Sterling.

After the currency managed to gain on result of a surprise majority mandate given to the Tories, the British Pound has surged across the board and is most likely to continue its bullish momentum into the end of this week.

GBPUSD broke above the 1.553 resistance level and was seen trading at 1.568 at the time of writing, while the EURGBP saw a bit of a struggle as the Euro was also trading stronger today. EURGBP was trading at 0.7185 with support coming in at previous lows of 0.706. The GBPJPY perhaps saw the strongest rally with the currency trading above the 188 handle on the news.

The next main event to look forward to, as far as the British Pound is concerned comes from the monthly jobs report, due tomorrow. Market expectations are for the unemployment rate to decline to 5.5% from 5.6% last month while the claimant count change is expected to remain steady at -20k region. The average earnings index is also expected to remain unchanged at 1.7%

Also tomorrow, later in the day, Mark Carney, the Bank of England Governor is expected to release the inflation report. Consensus expects a slightly hawkish tone in the report considering that the downward pressure on inflation could ease given that Oil prices, which include both the Brent and the WTI have managed to surge in recent months. It will be especially interesting to hear the Governor’s views on the short to medium term inflation expectations for the country. The markets will likely look at the inflation report for any clues in regards to hints of timing for the UK interest rates.

As of now, expectations are for a Q2 rate hike from the BoE in 2016, but that could change if inflationary pressures start to build up, combined with a pick up in the labor market which has seen a bit of stagnation in recent months.

If the markets view the inflation report (combining with a better than expected jobs report) as hawkish, the British Pound could possibly set its eyes towards the 1.6 handle in the near term against the Greenback. With investors continuing to doubt the economic growth the Greenback has pretty much stalled its rather strong bullish rally. Although the current weakness in the Greenback is most likely a temporary effect, other currencies have managed to surge posting new yearly highs already. In this aspect, the British Pound, combined with strong economic fundamentals could very well look to compete against the Greenback as interest rate hike speculation starts to see investors buying up the British Pound.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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