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Sterling Gears up for UK Manufacturing Report

H.S. Borji
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Sterling Gears up for UK Manufacturing Report

The UK manufacturing industry had a solid first quarter, despite cooling somewhat from the near-record growth rates seen in the second half of 2013. Increased production and new business continued to drive recovery, with February experiencing the fastest pace of job creation in 33 months, according to Markit Group.

The Office for National Statistics will release official manufacturing data on Tuesday. The figures are expected to show manufacturing production expanded 0.3 percent in February and 3.1 percent annually, according to a broad consensus of market analysts. Industrial production is expected to have risen 2.2 percent annually in the same month.

The forex market will actively monitor Tuesday’s report to gauge not only manufacturing production, but the pace of GDP growth in the first quarter. According to Markit senior economist Rob Dobson, the goods-producing sector provided a solid boost to the UK economy in Q1. Markit’s PMI figures suggest the UK economy expanded by at least 0.7 percent in the first quarter.

The pound will respond positively to expansion in manufacturing and industrial production, even if the pace of growth is not as robust as the previous month. Weaker than forecast data could have the opposite effect, and could raise concerns about the UK’s export recovery. Policymakers at the Bank of England expressed concern last month that any additional strength for the pound could weigh on Britain’s export-based recovery. Weak factory data could therefore trigger a sell-off for the pound.

In Monday’s early North American session, the GBPUSD pair was trading at 1.6616, up 0.25 percent. The pound was relatively unchanged versus the euro. The EURGBP pair consolidated at 0.8267, easing from an intraday high of 0.8284.

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