The British Pound Sterling has enjoyed a nice and strong rally against major currency pairs. It has launched a rally which stretched over 1,500 pips over a few short months as many traders believed the UK will raise interest rates much sooner than Carney’s Bank of England target of 2015.
While the general trend for the British Pound Sterling remains bullish, a correction was expected as our analysts’ have called the GBPUSD, GBPAUD, GBPJPY as well as GBPCAD lower in order to trade out of extreme conditions. A correction is also required in order to maintain a healthy uptrend.
A trigger is what the British Pound Sterling needed and today’s economic data has provided the trigger for a sharp one day sell-off which may last for a few more days. The GBPUSD should correct further and below 1.5800 it is advisable to buy the dips.
Industrial production for August was expected to show a decline of 0.7% which follows a contraction of 1.1% in July. The actual figure came in much worse than expected and showed that industrial production declined 1.5% in August year-on-year. Industrial production month-on-month was expected to show an increase of 0.4%, but contracted 1.1%.
Manufacturing production, which declined 0.3% in July, was expected to show an increase of 1.0% in August. The actual figure showed a rather disappointing and unexpected decline of 0.2%. Month-on-month manufacturing production was expected to show an increase of 0.4% while it contracted 1.2%.
Trade data for August also showed a much bigger deficit than expected while the NIESR GDP forecast for September came in at 0.8% which represents a decline of 0.1% compared to last month. Overall the economic data presented today pointed towards an UK economy headed in the wrong direction.
Tomorrow we will get the Bank of England rate decision as well as an update on the GBP 375 billion stimulus package. No changes are expected with the stimulus intact and interest rates at 0.50%. The UK will raise interest rates before its major counterparts and overall the British Pound Sterling should continue its upward path, especially against the USD.