Forex Market: GBP/USD hits fresh four-week highs as UK manufacturing output surges the most in three years

The UK pound rose to the strongest level in almost four weeks against the US dollar, after official data showed UK industrial output rose at a faster-than-expected pace in February, led by a surge in manufacturing production, which advanced at the fastest annual pace since February 2011.

GBP/USD hit a session high at 1.6713 at 08:34 GMT, after which the pair consolidated at 1.6706. adding 0.59% for the day. Support was likely to be received at April 7th low, 1.6566, while resistance was to be encountered at March 13th high, 1.6717.

Annualized industrial output in the UK probably expanded 2.7% in February, sharply exceeding analysts estimates of a 2.2% gain and following a 2.8% increase during the preceding month. In monthly terms, industrial production increased 0.9% in February, compared to expectations for a 0.3% increase and after the index was flat in the previous month. The index presents the change in the total inflation-adjusted value of production in sectors such as manufacturing, mining and energetics.

The UK annualized manufacturing production, a short-term indicator which accounts for almost 80% of nation’s industrial output expanded 3.8% in February, outstripping experts projections for a 3.1% increase. In January manufacturing output rose at an annualized pace of 3.2% which was revised down from a previously reported 3.3% gain. In monthly terms, production increased 1% during February, again sharply surpassing analysts expectations for a 0.3% advance and after a revised 0.3% gain in the previous month, that was smaller than previously reported.

“Growth is strengthening in the short term, but challenges persist and, despite this progress, the recovery is not yet secure,” BCC Chief Economist David Kern said in a Bloomberg News interview today.

All these data points added to signs the economic recovery is gaining momentum and cemented expectations that the UK economy continued to expand in the first quarter, before the release of the official data.

Meanwhile, investors’ attention was focused on the minutes from the March 18-19 Fed policy meeting, due to be released tomorrow. The Federal Open Market Committee, which cut monthly asset purchases by $10 billion at each of its past three meetings, is set to reconvene at the end of the month.

Federal Reserve Chair Janet Yellen said last week that the central bank needed to do more to fight against unemployment, because keeping interest rates near zero for more than five years and swelling its balance sheet with asset purchases seemed not to be enough. She also added that the US economy still needed monetary stimulus for “some time” and that most of the Fed officials shared the same opinion.