Dollar looks upbeat as the Pound struggles

August 10, 2016

The British pound remains tamed as it is falling below the 1.30 level during the Asian session on Tuesday. Following the gloomy UK, manufacturing and trade balance reports the decline in the performance is visible.

The GBP/USD trades are in the range of 1.2967-1.3010 with heavy bearish bias, the GBP/JPY fell by 0.80% to 132.50 as post-BoE selloff influence lingers on the markets longer than expected.

The Administration of Nation Statistics of the UK reported that the manufacturing production in June fell by 0.3%, after dropping by 0.6% a month earlier, which is a lot worse than the medium forecast of -0.2%. A year-to-year growth averaged around 0.9%, trailing the forecasted 1.3%. FTSE 100, the UK local stocks gauge, advanced by 0.31% to 6830.50 points and exporters benefited from the weakened sterling.

The total trade balance dropped by 5.084 bn. pounds in June, which was worse than expected 2.550 bn.  As the data reflects the UK manufacturing sector prior to Brexit, interestingly it proved to have a slim impact to the pound. Investors will rather focus on the fresh data to estimate the potential fallout from the UKs referendum.

The US Dollar remains upbeat after the Friday payrolls data showed robust growth of the labour market in the US. This adds to regaining confidence in the economic pickup of the US, fanning the speculated FED rate hikes earlier than expected. Futures on US Dollar trades are at 96.31, 0.02% higher from Monday close. The odds of lifting the rates by 25 b.p. in December remains at 38.3%.

The Chinese local stocks ticked higher in July CPI, an important gauge of economy expansion, rising by 1.8% and tallying with forecasts. The Producer Prices contracted by 1.7% in July, beating the projection of a 2% drop. The CSI300 and Shanghai Composite Index rose by 0.7 percent to 3.256,98 and 3.025,68 points respectively.

The analysts said that the low inflation leaves the door open for further easing, but the Chinese government will be cautious to use tools that have the potential to shake down the economy in the future. More light will be shed on the debt burden of the Chinese economy when the Loans and Aggregate financing data will come out tomorrow morning.

The mining companies rose by 0.56 percent with room for a further upturn as investors expect that the measures taken by Beijing cutting excess production facilities will support the commodity prices in the second half of this year. At the same time the real estate sector, with nearly 10% gaining in the past three sessions, was nearly flat on Tuesday during the profit taking. The stocks in Hong Kong traded without a clear direction on Tuesday after stooping to an eight-month low on Monday with the sliding IT-sector, which offset the upturn of energy and real estate companies.

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