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Sterling falls as UK manufacturing figures undershoot expectations

Published:  13 May, 2011

Sterling had a poor end to an otherwise positive week on Thursday, falling against the US dollar and euro after data showed manufacturing rose less than estimated.

Sterling had a poor end to an otherwise positive week on Thursday, falling against the US dollar and euro after data showed manufacturing rose less than estimated.

Currency rates - May 13

EURO/GBP - 1.1413
US$/GBP - 1.6279
CHF/GBP - 1.4425
CAN$/GBP - 1.5663
AUS$/GBP - 1.5234
ZAR/GBP - 11.216
JPY/GBP - 131.37
HKD/GBP - 12.653
NZD/GBP - 2.0452
SEK/GBP - 10.254
US$/EURO - 1.4260

Sterling had rebounded on Wednesday as the Bank of England unexpectedly raised its long term forecast for interest rates to 5%. Investors priced in the likelihood of a potential interest rate hike. However, with manufacturing figures undershooting expectations the likelihood of a sooner than expected rate hike was pushed back. Sterling has held above €1.14, but rates are so volatile at the moment that we could feasibly see it drop back towards 1.10..

In the euro zone, the euro broke below a key level against the US dollar, falling to $1.4150 - the lowest since April 1. The week has been dominated by talk over a potential restructuring of Greek debt and there were even reports that Greece was in negotiations to leave the single currency completely. Both rumours were subsequently denied by the Greek government, but there was significant volatility through the week - notably losses against sterling and the US dollar. Key data is released today in the form of euro zone GDP. A survey of key economists on Thursday suggested that the figures will come in better than expected.

The US dollar saw a boost last Friday as non-farm payrolls jumped more than had been expected. Following concerns over Greece this week, global risk appetite dropped which saw an 'unwinding' of risky commodity based investments - i.e. the sale of Australian dollars to buy back US dollars to avoid being caught out. This saw the US dollar index hit a 3 week high on Thursday and pushing the euro to a six-week low against the US currency. Retail sales data disappointed on Thursday. 

Elsewhere, it has been a turbulent week for the commodity-linked currencies as investors pulled out of the higher yielding investments. The Australian dollar was particularly weak against the US dollar, and the South African rand tumbled by more than 2.5% against sterling.

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