Sterling knocked off its perch with surprise data

Wednesday’s trading was another damaging one for the pound as the recent rally has seemingly found its ceiling. Sterling suffered its 3rd consecutive days of losses against the Euro, trading over 3 cents lower in as many days. This move is a combination of a stronger Euro after the fear selling during the last few weeks leading up to the Austrian and Italian elections where the worst fears did not come to reality, as well as a pressured pound from recent poor data. Yesterday morning’s release confirmed the biggest fall in manufacturing production since 2013, with both Industrial and Manufacturing Production contracting as much as 1.3% during October against expectations that we would see around 0.5% growth.

Despite the poor activity in the manufacturing sector, the NIESR continue to estimate a 0.4% growth for UK GDP in the 3 months to the end of November, with GDP being very much supported the buoyant and vast Services sector over recent months. This level of consumer spending growth is however not expected to persist which raises concerns over growth going into 2017, which could easily slip towards zero with other sectors already shrinking. With Brexit negotiations still ongoing with as much uncertainty as ever, we could still see a rocky road ahead for Sterling in the New Year.

The focus today is very much on the Euro again with the ECB Interest Rate Decision at 12:45pm followed by the usual press conference from Mario Draghi. Whilst the markets do not expect any changes to the headline rates, there is strong expectation that they will announce a 6 month extension to their Asset Purchase Programme that is currently set to expire in March 2017. Typically this move would weaken the currency in question, perhaps giving some better opportunities to buy Euros, however it is not out of the questions that the markets view this as a positive and necessary move for the Euro-zone recovery and the Euro could well continue to strengthen from its oversold levels of last week.

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