GBP/USD with a sudden drop to two-week lows after a set of disappointing UK data

OB-WN555_pound0_G_20130301063433British pound tumbled to its lowest point in two weeks against the US dollar on Wednesday, following the release of disappointing data on trade balance and manufacturing production out of the United Kingdom.

GBP/USD fell to a session low at 1.5967 at 8:51 GMT, after which consolidation followed at 1.5978, losing 0.66% for the day. Support was likely to be found at September 24th low, 1.5956, while resistance was to be met at current session high, 1.6120.

According to a report by the Office for National Statistics (ONS) in the United Kingdom, the index, gauging overall industrial production in the country, fell 1.1% in August on a monthly basis, marking the largest monthly drop since September 2012, after the 0.1% uptick in July, while expectations pointed a 0.4% gain. Annual industrial production contracted at a faster pace than projected in August, by 1.5% instead of 0.7%, as this widened the recorded 1.1% drop in July.

A major factor behind the above mentioned results was the decreased manufacturing activity in the country. UK manufacturing production declined 1.2% in August compared to July, confounding experts estimates of a 0.4% increase, while in July the output inched up 0.2%. On annual basis, manufacturing production dipped 0.2%, again opposing forecasts of a 1.0% gain and furthering the drop of 0.3%, registered a month ago. Data implied that industrial sector continued to demonstrate a worse performance in comparison with other sectors of the economy. These data points came in sharp contrast with the optimistic economic indicators, released during the recent weeks out of the UK, suggesting that economic recovery remained frail.

In addition, the deficit on nations trade balance slightly narrowed in August compared to July, reaching 9.625 billion GBP from the revised 9.941 billion GBP a month ago, while experts had projected that the deficit figure will shrink more, to 8.800 billion GBP.

Alongside these previous data points, a survey by Bank of England revealed that UK banks were intending to increase household and business lending during the final quarter of the year. The survey on credit conditions also pointed that economic outlook was improving and demand for loans – increasing. This report came as another evidence that nations economy was picking up the pace, while corporate lending was becoming more active, after months of stagnation. Households, on their part, were more willing to apply for a loan in order to fund more significant purchases.

Meanwhile, the US dollar received certain support after it became clear that Federal Reserve Bank Vice Chairman Janet Yellen would probably succeed current Chairman Ben Bernanke, whose term ends on January 31st. Yellen has been known as one of the upholders of the unprecedented monetary stimulus program. If she is confirmed as the next Chairman, under her leadership Fed’s monetary policy may remain accommodative for a more extended period.

Elsewhere, the pound was lower against the euro as well, with EUR/GBP cross advancing 0.31% for the day to trade at 0.8467 at 9:27 GMT. GBP/JPY pair was losing 0.13% to trade at 155.64 at 9:29 GMT.

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