Pound Weakens Against Major Currencies Because of Poor Manufacturing Industry Report

After surging ahead for 2 consecutive days, the Pound weakened against Euro today. An industry report published stated that the manufacturing in United Kingdom was near a 10-month low in this month and the expectations have also dropped to the lowest level since October, last year. The Pound has also lost against USD, slipping from the 2 week high against the greenback.

The Confederation of British Industry’s factory orders index rose to minus 23 in October, the lowest value since last year December. The policymakers of Bank of England including Deputy Governor Paul Tucker and Governor Mervyn King already testified in the British parliament. The Debt Management office has also started the preparation of selling the index linked bonds.

According to Ian Stannard, who works as the Head of European Currency Strategy for Morgan Stanley, Pound has received a bit of support from the current situation in the Euro zone. But, UK is currently experiencing issues in the economic fundamentals and hence it is limiting any possible rebound in the currency. The Pound weakened by 4% against Euro and is at 80.72 pence per Euro currently. It is priced at 1.5947 USD and 1.4919 Swiss Franc currently.

The output expectations for the manufacturers’ were down to minus 9 for the next 3 months. This marks the lowest measure reported for this year. The report was published by the CBI, the biggest business lobby of United Kingdom.

The 10-year gilt yield of UK rose by 1 basis point and is at 1.87% now. The 1.75% security which is due in September 2022 is currently traded at 98.97. Two-year gilts, on the other hand, yielded around 0.31%. The DMO is expected to sell some of the index-linked gilts due in 2044, using banks as the medium. Some of the banks which have already been hired for leading the sale are: HSBC Holdings Plc., Bank of America Corp., Nomura International Plc. and Deutsche Bank AG. According to insider sources, the banks are going to allot 3.25 billion pounds of the securities. On the other hand, the yield on the 2042 security climbed up by 8 basis points and is at 0.26% currently.

As per as the analysis of JPMorgan Chase & Co. is concerned, the 10-year gilt yields will climb up by 2.25% by the month of June, next year. The Bank of England would halt its bond purchases by that time and on a whole, the UK economy will be on a recovery mode as well.

Incidentally, the policy makers of Central Bank decided not to go ahead with the expansion program worth 375 billion pound. The decision of this expansion was taken initially to boost the country’s economy.

According to a senior strategist, Francis Diamond, the year 2012 has been more or less disappointing for United Kingdom economy. However, the investors expect to recover it slowly in 2013, mainly attributed by a better global economic backdrop. He also added that the quantitative-easing program of Bank of England has already finished and the monetary policy is expected to stay unchanged throughout the next year. Such factors can draw new investors in the New Year for United Kingdom.

Incidentally, in a recent interview, the Monetary Policy Committee member Martin Weale stated that he believes that voting for more stimuli will be beneficial for the country’s economy. However, Weale added that more stimuli should not spur the inflation in United Kingdom in anyway. According to analysts, more stimuli at this moment should not turn out to be non-inflationary if proper measurements are undertaken.