The high-flying British Pound received a hard knock from traders today when industrial and manufacturing production figures for the United Kingdom came in much worse than forecast. Within five minutes of the release the sterling had fallen over 50 points against the dollar and over 30 against the euro.
Industrial production in the British Isles fell 0.7 percent in May and April's production was revised down to 0.3 percent from 0.4 percent. This followed three straight positive months the longest stretch since the latter part of 2010. The median forecast from the Bloomberg survey of economists had been for a 0.7 percent gain.
On the year UK industrial production was 2.3 percent higher in May, a wide miss of the 3.2 percent projection. April's figure was also adjusted lower 0.1 percent to 2.9 percent.
Sterling's recovery off its reactive low of 1.7083 was complete by late afternoon in New York, though it took the balance of the European session and the full U.S. market to accomplish.
Just before the release at 4:30 am New York time the pound was trading at 1.7139. The collapse to the bottom took about 15 minutes; the climb back took up the rest of the European session and did not reach resistance at the earlier low of 1.7125 until 7:36 am in New York almost three hours after the initial fall.
The New York market itself brought the cable only 9 points higher to 1.7134, skirting the overall European top at 1.7148.
Manufacturing production likewise was roundly overestimated by economists as it contracted 1.3 percent, 1.7 percent below the 0.4 percent gain predicted. The annual figure was 3.7 percent under a forecast of 5.6 percent. April's figure ticked 0.1 percent down to 4.3 percent after adjustment.
Britain’s economy has been the best performing in Europe. First quarter GDP grew 0.8% from the prior quarter four times the 0.2 percent rate in the euro zone and matching the performance of the continent’s strongest economy Germany.
In all of 2013 Britain's economy expanded 2.7 percent while the EMU managed just 0.5 percent and Germany 1.4 percent.
The success of the British economy has driven the pound 15.6 percent higher against the dollar over the past year and 9.3 percent against the euro. Bank of England Governor Mark Carney warned recently that a rate hike may come sooner than the markets expect.
Though the production figures were a surprise this one set of numbers is unlikely to derail the reigning cable scenario. Traders will wait for confirmation of a slowing British economy before they change their stance on the pound.
Chief Market Strategist
WorldWideMarkets Online Trading