Sterling sinks after production report

The pound is off versus the US dollar after the UK revealed a surprise drop in manufacturing and industrial production for August.

The pound is trading at $1.5975, down 0.7%, after the UK’s latest manufacturing and industrial production reports showed a decline of 1.2% and 1.1% respectively. Both readings missed analysts’ estimates. The pound is trading below the important $1.6 level, but it is still up 6.7% in terms of the past three months, as the economic indicators from the UK have been largely positive. The financial markets do not move in straight lines, so even though there is a clear uptrend we may still see some pullback in GBP/USD.

It has been announced that Janet Yellen is to head up the Federal Reserve next year when Ben Bernanke steps down. Ms Yellen, like her predecessor, is a ‘dove’. This means she is in favour of keeping interest rates low in order to stimulate economic growth. The Fed kept the stimulus package unchanged at the last monthly meeting, but if traders start to suspect that the bond-buying scheme will be trimmed at the next meeting we could see them selling the pound and buying the US dollar.

Spot FX GBP/USD chart

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