Pound Lower As U.K. Economy Contracts; BoE Vlieghe Hints At Rate Cut
The pound slipped against its major counterparts in the early
European session on Monday, after the UK economy contracted
unexpectedly in November, opening door for a rate cut by the Bank
of England in the coming months.
Data from the Office for National Statistics showed that the UK
economy shrank in November due to the weakness in services and
Gross domestic product contracted 0.3 percent on month driven by
the falls in services and production. GDP had advanced 0.1 percent
in both September and October. Economists had forecast GDP to
In three months to November, the economy grew 0.1 percent
sequentially after rising by revised 0.2 percent in three months to
Industrial production declined 1.2 percent month-on-month in
November after easing 0.4 percent in October. Manufacturing logged
a monthly fall of 1.7 percent due large falls in output of
transport equipment, food and chemicals.
Industrial output was forecast to remain flat and manufacturing
to fall 0.1 percent in November.
On a yearly basis, industrial production was down 1.6 percent,
faster than the 0.6 percent decrease a month ago. Likewise, the
decline in manufacturing output deepened to 2 percent from 0.3
Over the weekend, Bank of England policymaker Gertjan Vlieghe
joined other officials to back additional policy loosening, if
there are no indications of a rebound in economic activity after
Speaking to the Financial Times, Vlieghe said that he would vote
for a reduction in interest rates later this month, if the economic
growth remained sluggish.
"I really need to see an imminent and significant improvement in
the UK data to justify waiting a little bit longer," he added.
The pound depreciated to 1.2608 against the franc, a level
unseen since October 15, 2019. The next possible support for the
pound is seen around the 1.24 level.
Breaking the key 1.30 level, the pound slipped to near a 3-week
low of 1.2961 against the greenback. If the pound slides further,
1.27 is likely seen as its next support level.
The pound fell to a 5-day low of 142.36 against the yen, from
Friday's closing quote of 142.98. The pound is seen locating
support around the 140.00 level.
The U.K. currency declined to nearly a 3-week low of 0.8576
against the euro from last week's closing value of 0.8511. On the
downside, 0.87 is possibly seen as the next support level for the
Data from Destatis showed that Germany's wholesale prices
continued to decline in December.
Wholesale prices decreased 1.3 percent year-on-year in December
but slower than the 2.5 percent decline seen in November. This was
the sixth consecutive fall in wholesale prices.
Looking ahead, the U.S. monthly budget statement for December
will be released in the New York session.
Sterling vs Yen (FX:GBPJPY)
From Jul 2020 to Aug 2020
Sterling vs Yen (FX:GBPJPY)
From Aug 2019 to Aug 2020