GBP/CHF Falls After Poor Manufacturing Data

Sterling Suffers After Poor Manufacturing Output Figures

The pound has been left on the back foot as it was announced on Tuesday that manufacturing production for May fell by 0.8%, contracting at its fastest pace for four months, highlighting Britain’s reliance on services to stimulate growth. As a result, GBP/CHF has fallen back into the 1.43’s.

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The pound tumbled against most of its major rivals after the data release earlier in the week, losing over a cent against the dollar and around 0.6% against the euro. The figures from the Office for National Statistics showed that the massive contraction in manufacturing output was driven largely by a drop in production of basic drugs and metals.

It was the fastest contraction since January and was much worse than the 0.3% growth that economists had been forecasting. The data came as a surprise to most economists as recent surveys seemed to be indicating that British manufacturing activity had increased significantly in May and had picked up in June, helped by strong demand for British made cars and clothing.

“Today’s figures feel a little out of kilter with other industry data and what our manufacturing clients are telling us,” said Mike Rigby, head of manufacturing at Barclays.

“To many it feels like we are experiencing a more positive outlook but today’s figures do show that a number of challenges still persist. It’s not surprising to see the manufacture of base metals and products has contributed to the fall in manufacturing as commodity prices fell during the period.”

Despite the recent weakness in the pound, separate data from the ONS showed that Britain’s overall trade deficit hit its highest in three months as the volume of exports of goods fell in May. This has fuelled further speculation that Mark Carney may attempt to increase the UK’s level of monetary easing in an attempt to weaken sterling further. The trade deficit was estimated to be £2.4 billion in May, compared with £2.1 billion in April. The negative data pushed GBP/CHF rates into the 1.42’s before recovering slightly.

“Overall, our trade deficit is still too large, and we are not making fast enough progress in rebalancing our economy towards net exports. Our recent economic survey revealed huge untapped potential among British exporters, especially in services, and releasing this potential will help to secure a sustainable recovery.”

On the Swiss side of things, the Franc has been supported by safe-haven demand with continued uncertainty over the US Federal Reserve’s plan to start tapering its quantitative easing programme, helping bring GBP/CHF rates down.

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