The Pound lost more ground against the majors yesterday, falling 0.7% against the Euro and a further 0.2% versus the Dollar following a round of disappointing UK economic data. Manufacturing output unexpectedly slowed in the month of September with factory production unchanged after expanding in each of the previous four months. The decline in production is likely to be a result of the dramatic slowdown in U.S economic growth in the third quarter, which grew at the slowest pace in over three years in the last quarter and therefore, demand for UK exports in the States has subsequently declined. However, the report will have a minimal affect on the outcome of the November interest rate announcement this Thursday and it is widely anticipated that the Bank of England will lift UK interest rates to 5.0%. Although, the disappointing report on manufacturing will act as a reminder that any further monetary tightening will be limited in the face of slowing economic growth and falling energy prices. There is some significant data released in the UK this morning with the focus falling on the BRC retail sales survey and the consensus forecast suggests a moderate decline for the third consecutive month in October, which gives an indication that UK consumer spending will be weak in the fourth quarter.

The Dollar managed to make gains yesterday despite a sparse supply of economic data released in the States although the political tension surrounding the impending U.S mid-term election is increasing with some analysts anticipating that a Democratic victory in either the House or the Senate could boost the Dollar. In addition, some surprisingly hawkish comments from Federal Reserve member Michael Moskow sent the Dollar higher against the Pound yesterday as he reopened the debate surrounding U.S monetary policy, saying a further rise in interest rates may be needed in order to bring inflation back under control.

The Euro made gains against the majors yesterday, firming an additional 0.1% against the Dollar despite a round of poor economic data as growth in the European service industries, which represents the biggest part of the economy, unexpectedly slowed in October. The purchasing manager's index on the service sector fell to a reading of 56.5 last month, the fourth consecutive monthly decline, and the report suggests that the fastest economic growth in six years may have peaked in the twelve nations sharing the Euro. The Euro may receive a further boost this morning following a report on Euro-zone retail sales for the month of September, which is widely expected to rise by 0.4% while the core rate may slow to 2.0%. However, falling unemployment, lower oil prices and rising consumer sentiment may not be enough to boost spending as downside risk comes from the impending value added tax increase in Germany, which has seen German retail sales plunge to 1.7% over the last month.

Data Released 7th November

UK 11:00 BRC Retail Sales Survey (October)

EU 10:00 Retail Sales (September)

GER 11:00 Industrial Production (September)

written by Adam Solomon