FX Headlines: Weak UK Production Data Drops Sterling, Weighs on Euro

DailyFX

Talking Points

- Weak UK data leads British Pound lower; Euro and Swiss Franc hurt amid implication that region’s growth may have peaked in midsummer.

- ECB’s Draghi hits the lecture circuit with a speech in the US today.

- Volatility to remain high as tensions around US fiscal talks remain elevated.

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EURO-ZONE ECONOMIC CALENDAR

FX_Headlines_Weak_UK_Production_Data_Drops_Sterling_Weighs_on_Euro_body_Picture_1.png, FX Headlines: Weak UK Production Data Drops Sterling, Weighs on Euro

The Euro is weaker in the first part of the European trading day despite a lack of data on the calendar. Indeed, it seems that investors are driving the Euro lower for two-fold: one, that UK data was so weak, suggesting that regional economic activity may have cooled; and two, recent positive headlines out of the US regarding the fiscal debacle. A small pullback in the German Industrial Production figures due today, in context of the UK data, would confirm a slowdown in economic activity and lead to a near-term negative tone for European FX.

Later on in the day, after the US equity market closes, ECB President Mario Draghi will be giving a speech at Harvard University. Just last week, President Draghi toned down the ECB’s dovish rhetoric and pushed the central bank into a more neutral position. Clarification of this perspective could help the Euro stabilize if loses continue throughout the day.

Read more: Should US Fiscal Tensions Ease, Euro Will Ultimately Gain

UK ECONOMIC CALENDAR

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FX_Headlines_Weak_UK_Production_Data_Drops_Sterling_Weighs_on_Euro_body_x0000_i1028.png, FX Headlines: Weak UK Production Data Drops Sterling, Weighs on Euro

UK economic data was disappointing across the board today with production falling at its quickest one-month slide since September 2012, according to Markit Economics. The data represents a significant step backwards in light of the fact that it not only undercut the market consesus, it also represented a steeper decline than the previous month. If UK production data is topping, it could be a sign that the broader region is seeing a cooling of economic momentum; the Euro-Zone accounts for over 40% of the UK’s exports.

UK Gilt yields slid to multi-week lows (10YY at six-week lows) suggesting that investosr are embracing the data in a negative fashion. Scope for futher losses in the British Pound, the worst performer during the European session at the time of writing, may be limited with the Bank of England’s policy meeting set to conclude tomorrow. I’ll be covering the Bank of England Rate Decision live in the DailyFX Live Trading Room at 06:45 EDT/10:45 GMT on Thursday, October 10.

Read more: British Pound May Have Set 2013 Peak – Two Key Themes to Watch

SWISS ECONOMIC CALENDAR

There are no data due for the Swiss Franc on Wednesday, October 9.

Read more: US Dollar Volatility and Direction in US Government’s Hands

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--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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