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Sterling plummets due to drop in UK manufacturing data

Published:  02 June, 2011

Sterling had a poor day yesterday, plummeting against the US dollar and euro to close the day nearly 0.6% down against both currencies.

Sterling had a poor day yesterday, plummeting against the US dollar and euro to close the day nearly 0.6% down against both currencies.

Currency rates - June 2

- 1.6324
- 1.3775
- 1.5989
- 1.5361
- 11.115
- 131.99
- 12.697
- 2.0074
- 10.192
- 1.4372

The reason for the sudden drop was that UK manufacturing data came in much worse than expected. Manufacturing PMI data fell to a 20 month low of 52.1 last month, well below the 54.1 that had been forecast. In addition, UK mortgage approvals fell to their lowest level in four months. Whilst many had been expecting a lower reading on both, the unexpectedly steep drop sent sterling tumbling. Poor data has reduced the likelihood of the Bank of England increasing interest rates and with even more key sector activity figures coming out over the week, there is a risk that sterling will drop further.

In the euro zone, in contrast to sterling, the euro showed little reaction to lower than expected euro zone manufacturing PMI data which showed growth slowing. Despite the region embroiled in a second round of panic over the debt crisis, investors are more focused on a European Central Bank meeting next week when policymakers are widely expected to signal a rate hike in July. There was some volatility as mixed speculation abounded with regards to a potential second bailout for Greece, and this is likely to continue whilst the EU and IMF negotiate a solution. 

The US dollar slipped to a fresh record low against the Swiss franc, as deteriorating U.S. economic data put pressure on the US currency. This came in contrast to better than expected data on Swiss manufacturing and retail sales, which saw the dollar drop. In addition, the US dollar was dented by figures that showed employment increased by only 38,000 last month - the smallest gain since September. Out today there is further unemployment claims figures, so make sure you do not miss out by speaking to one of the team today.

Elsewhere, Australian GDP fell by 1.2 percent on the Quarter, 0.2% worse than had been expected. Exports dropped which was a major contributor to the lower reading. With a strong Australian dollar and slowing demand from China it is no surprise that exports have fallen. Will this be the start of a turnaround for the Aussie dollar?

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