(Bloomberg) -- The pound fell for the first time in three days versus the dollar after data showed U.K. factories and construction companies' output unexpectedly declined in May, adding to a spate of recent data that pointed to an economic slowdown.
Sterling was on course for weekly declines against all but two of its Group-of-10 peers, as manufacturing, industrial and construction output all dropped and undercut analysts' forecasts. Data released earlier showed U.K. house prices grew at their slowest pace in four years. Purchasing Managers Index data released this week showed a similar underwhelming trend, raising doubts on the performance on the economy in the second quarter and the ability of the Bank of England to tighten monetary policy amid political and Brexit-related uncertainties.
- GBP/USD falls 0.7% to 1.2879, set for a 1.1% decline this week; support at 1.2874/75 55/50-DMAs, resistance at 1.2948 July 5 high
- “Sterling is going to be highly sensitive to data” given the talk of tighter BOE policy, says Viraj Patel, a currency strategist at ING Groep NV in London
- “The Bank of England has put this discussion of rate hikes onto the table and essentially now markets are looking for validation in the data to either support or dismiss the case for a rate hike in 2017”
- “The trend has been on a softer footing for U.K. data,” Patel says. “You're going to get disappointing U.K. data and all that's going to do is push the case for a rate hike into 2018” and weigh on sterling
- EUR/GBP climbs 0.4% to 0.8842; 0.8863 June 27 high, support at 0.8791 July 4 high
- ING's Patel says the pair could test the 90 pence mark “due to the tailwind of the strong euro over the next couple of months and weak U.K. data, so you'll get a clear divergence of monetary policy” between the euro area and Britain
- Manufacturing fell 0.2% from April as vehicle production dropped the most in more than a year, the Office for National Statistics said. Total industrial production declined 0.1 percent. Building output shrank by 1.2 percent
- U.K. house prices slipped 0.1% on a quarterly basis, and declined 1% from a month earlier, lender Halifax said Friday
- Yield on 10-year gilts falls 2 bps to 1.29%
--With assistance from Sejul Gokal
To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins
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