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The pound eased from the 22 month high reached on Monday morning

The pound eased from the 22 month high reached on Monday morning against the euro but rose strongly against the Australian dollar yesterday.

Data from the Markit’s Purchasing Managers’ Index showed that UK manufacturing growth faltered in April as exports were hit by weaker worldwide demand, particularly from mainland Europe, the US and East Asia.

A possible bigger concern for policy makers was a continued acceleration in average output price inflation in April with prices rising at their quickest rate for seven months in April.

Meanwhile, data from the GfK Social Research showed that UK consumer confidence fell in April. Nick Moon, its managing director advised “the figures this month will not offer the government any relief in light of the news that the economy has slipped back into recession (…) There are no signs either within the survey or in the recent economic figures to suggest any immediate improvement.”

In contrast, stronger than expected US manufacturing data gave the US dollar a lift on Tuesday and moved the Dow Jones index in New York to a post Lehman Brothers peak.

The closely watched Institute for Supply Management’s index on the US manufacturing sector rose to 54.8% in April. A figure above 50 indicates expansion. The positive manufacturing report was in contrast to recent disappointing housing and consumer confidence data.

The Australian dollar suffered a torrid day, falling against all its major rivals on Tuesday after the Reserve Bank of Australia reduced its key lending rate by a bigger than expected 0.5% margin to 3.75%. The markets were expecting a 0.25% cut to ease the pressure on the Australian domestic economy which has been suffering of late through a combination of a strong exchange rate and high interest rates. The pound reached a 5 month high against the Aussie in light trading due to the May Day public holiday.

This morning the euro is falling back as markets prepare for the crucial Spanish bond auction tomorrow, the first since credit ratings agency Standard & Poor’s (S&P) downgraded Spanish sovereign debt by two notches last week and followed up with a downgrade of the Spanish banking sector on Monday. This weekend also brings the decisive second round of voting in the French Presidential election and Greek general election so the majority of analysts expect the euro to once again take centre stage.