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Sterling falls as manufacturing production comes out worse than expected

Tammy Wally
11 March 2010

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The British pound fell against the greenback and euro on Wednesday and analysts expect further declines for the currency given the gloomy economic outlook for Britain and worries on the political front. Weighing on the pound were fears about a hung parliament as flagged by political opinion polls on Tuesday and the latest in a string of disappointing data on the economy. British manufacturing output numbers early in the session showed a 0.9 percent decline in January. Bank of England policymaker Adam Posen's comment that sterling's recent weakness did not suggest markets have lost confidence in Britain's inflation outlook offered the currency some support. "The reiteration of those comments provided a bit of support," said Jeremy Stretch, strategist at Rabobank."The fact that stocks are holding in quite well, that's seeing the risk appetite story provides a temporary respite for sterling. Also we haven't had any data since 9.30am, so that's the good news." The GBP/USD is currently trading at $1.4960 as of 20:32pm, GMT, with a bearish trend.

Sentiment toward the dollar climbed to 66.39 this month from 55.72 in February, according to the survey. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect the dollar to strengthen. The fallout from the budget crisis in Greece has made German investors the most bearish on the 16-nation euro currency since the survey began in November 2007. Sentiment from German participants tumbled to 20 from 37.5, and dropped to 12.5 percent in France and 21.48 in Spain. “The Greece situation was definitely something that helped the dollar recover,” said Shaun Osborne, chief currency strategist in Toronto at Toronto-Dominion Bank and a survey participant. “It started to take on a life of its own. Now the markets are waiting to see where we go from here.” The EUR/USD is currently trading at $1.3640 as of 20:45pm, GMT, with a bearish trend.

Canada’s dollar traded near its strongest level in almost five months as investors bet the nation’s economy will be among the strongest during the global recovery. “The Canadian dollar has seen a monumental run in the last several weeks,” said Eric Lascelles, chief economics and rates strategist in Toronto at Toronto-Dominion Bank. “For once the motion is because of fundamental factors in the economy that has prompted the Canada-U.S. rates spread to look more attractive, with people piling on that trade.” The Canadian currency could reach parity with the greenback as the Bank of Canada moves to increase interest rates, according to Canadian Imperial Bank of Commerce. The USD/CAD is currently trading at 1.0260 as of 21:00pm, GMT, with a bullish trend.

Finotec Analysis Team
11 March 2010

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Today's Economic Events

Time	Event	Currency/Country	Period	Previous	Forecast	Significance	Actual
11-03-2010 23:50	Foreigners Buying Japan Bonds (Yen)	JPY/Japan		377.4
11-03-2010 23:50	Foreigners Buying Japan Stocks (Yen)	JPY/Japan		57.7
11-03-2010 23:50	Japan Buying Foreign Bonds (Yen)	JPY/Japan		-10.9
11-03-2010 23:50	Japan Buying Foreign Stocks (Yen)	JPY/Japan		-37.7
11-03-2010 21:45	Retail Sales (M-o-M)	New Zealand	Monthly	0.0	0.5
11-03-2010 21:45	Retail Sales - Ex. Auto (M-o-M)	New Zealand	Monthly	-1.8	0.7
11-03-2010 21:00	REINZ House Sales (Y-o-Y)	New Zealand	Yearly	6.9
11-03-2010 15:30	EIA Natural Gas Inventory (Cubic Feet)	United States		1737
11-03-2010 13:30	Capacity Utilization Rate	Canada		67.5
11-03-2010 13:30	Exports	CAD/Canada		32.19
11-03-2010 13:30	Imports	CAD/Canada		32.44
11-03-2010 13:30	International Merchandise Trade	CAD/Canada		75	0.2		799
11-03-2010 13:30	New Housing Price Index (M-o-M)	Canada	Monthly	0.4	0.4		0.4
11-03-2010 13:30	New Housing Price Index (Y-o-Y)	Canada	Yearly	-0.9
11-03-2010 13:30	Trade Balance	USD/United States		-39.9	-40.6		-37.3
11-03-2010 13:30	Imports	USD/United States		182.9
11-03-2010 13:30	Exports	USD/United States		142.7
11-03-2010 13:30	Initial Jobless Claims	United States		468	460		462
11-03-2010 13:30	Continuing Claims	United States		4521	4495		4558
11-03-2010 08:30	Interest Rate Decision	Switzerland		0.25
11-03-2010 02:30	Participation Rate	Australia		65.3	65.3
11-03-2010 01:30	Employment Change	Australia		52.7	15		0.4
11-03-2010 01:30	Unemployment Rate	Australia		5.3
11-03-2010 00:00	Consumer Inflation Expectation	Australia		3.2