As we already know, currency prices are always driven by two primary fundamentals, interest rates and economic growth. According to the latest reports – the Manufacturing output in the UK for the month of May, fiscal ’08, fell more-than-expected, declining 0.5% from April and adding to fears that the economic downturn is deepening.
Global Insight Chief economist Howard Archer, as reported by Telegraph.co.uk said:
“The bad news on the UK economy is coming thick and fast at the moment, and the downturn appears to be deepening appreciably.
Industrial production figures also added to the gloomy outlook falling 0.8% on a month-over-month basis in June, largely driven by a 5.2% drop in utilities output.
The pound also pushed lower today, adding to-tape its lowest level versus the greenback in almost two weeks. This fact along with fading economic growth prospects, prompted investors to scale back bets that the Bank of England will boost interest rates when it meets July 10. However, the following WSJ article seems to counter this as an assumption.
From The WSJ: Excerpt:
LONDON – The Bank of England’s Monetary Policy Committee is likely to keep its key interest rate on hold at 5% Thursday as it battles to keep inflation under control.
But some dismal activity figures — the latest showing the sharpest fall in industrial output in more than two years — have made it more likely the MPC will cut the rate before 2008 ends, economists say.
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