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Sterling Rallies on Unexpected Production Growth

Sterling Rallies on Unexpected Production Growth

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK industrial production unexpectedly jumps 1.0% in May -> Growth may be due to extra work day -> Sterling rallies from July low

United Kingdom industrial production told a different story than the usual gloomy economic indicators plaguing Europe. Industrial production was up 1.0% during May, while manufacturing production was up 1.2%, both beating expectations for a slight decline. The increase in production is a solid bounce back from April’s revised fall in industrial output of -2.0%, and a fall in manufacturing output of -1.5%.

However, industrial production is still down 1.6% from May 2011, and manufacturing output is down 1.7%, according to the UK Office for National Statistics. The increase in production should be viewed hesitantly, as the statistics office said the increase could be attributed to the extra work day that was added to the month, when a public holiday was pushed off until June.

This increase in production comes at a time when the Bank of England has been warning of the negative impacts of the European debt crisis on the UK economy. Last week, the central bank increased their stimulus program by 50 billion Pounds in an attempt to stimulate growth.

The unexpected production growth led to the first cable rally since the pair sold off to monthly lows at the end of last week. GBPUSD jumped 40 points on the news and currently (09:00 GMT) trades below the 1.5550 short-term resistance line.

Sterling_Rallies_on_Unexpected_Production_Growth______body_gbpusd.png, Sterling Rallies on Unexpected Production Growth

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