Sterling plummets due to weak UK manufacturing data

Published: 04 May, 2011

Sterling plummeted against both the euro and US dollar yesterday after a weak reading of UK manufacturing data left investors pushing back expectations of an interest rate hike.

Currency rates May 4.

EURO/GBP - 1.1117
US$/GBP - 1.6488
CHF/GBP - 1.4223
CAN$/GBP - 1.5730
AUS$/GBP - 1.5200
ZAR/GBP - 10.936
JPY/GBP - 133.58
HKD/GBP - 12.810
NZD/GBP - 2.080
SEK/GBP - 9.998
US$/EURO - 1.4840

Sterling hit the lowest level against the euro since March 2010, touching €1.1102/£1 this morning after the data was released. Weak UK growth has meant the Bank of England has resisted joining the European Central Bank in tightening monetary policy, and the diverging interest rates and outlooks has seen the euro gain by 5% against sterling since the beginning of the year. Sterling fell 1% against the US dollar, finishing nearly three cents away from the $1.67/ £1 that the pound hit last week. Today's construction figures could further exacerbate yesterday's fall.

In the euro zone, the euro hit a 17 month high against the euro as a flat outlook for US monetary policy contrasted sharply with European interest rate expectations, with many analysts pricing in another 2 0.25% interest rate rises before the end of the year. Out today there is monthly retail sales figures for the euro zone.

In the USA, the divergent rate expectations were also the story of the day as the prospect of indefinitely low interest rates in the country saw the currency drop to a fresh record low against the Swiss franc. The US dollar has now dropped 8% against major counterpart currencies in 2011, and is unlikely to stage a rally for some time until monetary policy catches up with Europe. In terms of data, we have a pre-cursor to Friday's non farm payroll figures on the form of the ADP non farm numbers.

Elsewhere, the Australian dollar weakened as the central bank kept interest rates on hold at 4.75% and sounded a little less keen to raise rates in the coming months. The Canadian dollar saw strength after a crushing conservative victory in the election.

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