Sterling Rises & Falls While Industrial output data contracts

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Sterling suffered a volatile day against the dollar on Friday which saw it reach a session high of $1.6383 but fell to a 2 week low of $1.6214. Investors sold the currency in early morning trade on expectations of a sharp fall in UK industrial output.

Data showed industrial output contracted by 1.7% in April this was mainly due to the extra bank holiday for the Royal wedding and supply chain disruptions caused by the Japanese earthquake. The figure came in far below the 0.1% increase which markets predicated but
many investors thought the number would come in a lot worse.

"Market rumours were for a fall of 4.5% so everyone was short going in to it," said a London-based currency trader. "Whilst (this is) a bad number, it wasn't as bad as expected." Analysts said the decline in UK's industrial output in April was likely to be one-off and activity
could bounce back in May.

"We'll need to see at least the May data to make any sense of the figures, and even then some of the earthquake effect is likely to be lingering in the data," said an economist at National Australia Bank. "It doesn't make life any easier for the Monetary Policy Committee, but then that is why they aren't likely to be moving the bank rate until November at the earliest." Sterling managed to bounce back throughout the day to trade around the $1.63 level but fell again to the near 2 week low before close of play.

The UK data did little to help market expectations of a rate rise in the UK any time soon, with financial markets now not pricing in a 0.25 basis point rise by the Bank of England until at least April next year.

Sterling held on to its previous day’s gains against the euro which occurred after the ECB President Jean Claude Trichet signalled another rate hike in July despite the escalating Greek debt crisis.

The pound reached a session high of €1.1285 up from the low of €1.1205

IN THE UK
• Industrial output data contracts by 1.7% in April which was mainly due to the extra bank holiday disruptions.
• The figure came in far below the 0.1% increase markets expected but many investors thought the number would come in a lot worse.
• Sterling fell to a 2 week low of $1.6214 against the dollar after the data was released.
• Analysts say the decline in Aprils figure was likely to be a one off and activity could bounce back in May.
• Producer input prices fell by 0.2% in April which points towards an easing in UK inflation.

ELSEWHERE
• A standoff between European officials over a Greek debt deal has meant the euro has weakened.
• Bundesbank head Weidmann warns Greece that aid will halt if Greece’s plans to cut deficit don’t work and states that the euro can withstand a Greek default.
• Merkel says Germany must help Greece, and German Finance Minister looks to allow Greece to extend maturities.
• Article published in the FT shows that French banks agree in principal to rollover of Greek debt.
• German Consumer Price Index fell to 0.0% from the previous release of 0.2% for May.
• Canada unemployment rate fell to 7.4% from 7.6%.
• Earthquake in New Zealand causes NZD to be sold off overnight

DATA TO LOOK OUT FOR
• There are no major economic data releases due out today, however there are speeches from ECB’s members Trichet and Draghi and Federal Reserve’s Lacker.

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.
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Russel Mori writes for Gerard Associates LTD, for more information on
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