Sterling strengthened against the US Dollar and the Euro after data published by the Office for National Statistics (ONS) showed that manufacturing production increased unexpectedly in July. According to the ONS report accompanying the survey, car manufacturing made the biggest contribution to this increase. Another report noted that exports of goods to third countries decreased, while exports of goods to the European Union (EU) increased in the second quarter of the year, highlighting the importance of the trade relationship between the UK and the EU.

A Reuters report suggested that European Central Bank policymakers discussed in Frankfurt ways to reduce the asset purchase programme. Key points were the reduction of monthly purchases to €40bn and €20bn gradually and that every decision should be taken with the broadest possible consensus. The Euro jumped when the ECB announced that the economic growth in the bloc will be stronger than expected.

Pound Sterling – UK Markets

Today, the Pound jumped against the US Dollar with the exchange rate set at $1.31. Sterling lost ground against the Euro with the exchange rate set at €1.09. The British currency got a boost from the release of the positive data release by the ONS regarding the UK manufacturing and industrial production.

According to the ONS, manufacturing production in July grew by 0.5% on a month-to-month basis, better than the 0.3% expected. On a yearly basis, the UK’s manufacturing production in July rose by 1.9%, a jump from June’s 0.6% reading. ONS analysts wrote in their report that the growth in the manufacturing sector was partly because of the increased car production, thanks to new models rolling off the lines. Industrial production rose by 0.2%, on a month-to-month basis, and 0.4%, on a yearly basis, both results coming in line with expectations.

However, it wasn’t all good news for the British economy as the volume of goods sent overseas increased by only 1.2% in the second quarter of 2017, which is the weakest figure in the last three quarters. Exports of goods to the EU rose by 4.4% in the second quarter, on a quarterly basis, while exports to third countries fell by 3.9%. Goods imports rose by 1.4%.

US Dollar – US Markets

The US Dollar edged lower against the Euro, with the exchange rate set at €0.82. The US Dollar Index (DXY) also dipped coming in at 91.27. The US currency was unable to resist the Euro’s appreciation after Draghi’s comments on the ECB’s monetary policy.

William Dudley, the president of the New York Fed and one of the most influential members of the Federal Open Market Committee (FOMC), said that it is appropriate to reduce the monetary stimulus gradually. “Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation,” said Dudley, who is considered an ally of Janet Yellen.

The NY Fed’s president noted that the falling US Dollar and the fading effects of a number of temporary factors means that inflation will rise to the 2% target over the medium term. Dudley expressed the opinion that the trimming of the Fed’s $4.5tn portfolio will, likely, start in October. Esther George, the president of the Kansas City Fed, said that wages outstrip inflation, a fact that is positive for the consumers. George also said that the labour market is continuing to tighten and added that the hurricanes, affecting the southern states, will have a temporary impact on the US economy.

Euro – European Markets

The Euro edged up against the US Dollar with the exchange rate set at $1.20. The single market currency broke above the $1.20 mark during the ECB’s press conference yesterday as the Eurozone’s central bank announced that economic growth will be stronger than expected this year.

Mario Draghi, the Italian head of the ECB, tried to control the rapid appreciation of the single currency when he stressed that there will be a negative impact on the medium-term outlook for inflation from the strengthening Euro. Draghi’s confirmed that asset purchases by the ECB will continue as planned, at least, until the end of the year. The Italian banker repeated that the Euro’s exchange rate is not a policy target and that the mandate of the central bank is to pursue price stability.

In Germany, the trade balance surplus declined in July to €19.5bn, decreasing more than expected by market analysts. This was the smallest surplus figure in the last six months. Exports’ growth in the second month of the summer was very weak coming in at 0.2%, instead of the 1.25% figure anticipated. Imports, in the same time period, also grew by 2.2%, instead of 2.8% that the market researchers were expecting.

Other Currencies – Highlights

Sterling dipped against the Australian Dollar, trading at 1.62 AUD. The Aussie was boosted by data which showed that the home loans number increased by 2.9% in July, almost twice more than anticipated. June’s figure had come in at 1.2%. Loans to investors dropped by 3.9% in the same month. A UBS report suggested that, despite the economic growth’s sharp acceleration in the third quarter of 2017, it will eventually miss the Reserve Bank of Australia's (RBA) expectations over the next eighteen months.

The Pound tumbled against the New Zealand Dollar, trading at 1.79 NZD. Statistics New Zealand office released data regarding the number of manufacturing sales in the second quarter of the year. According to data, the volume of sales increased by 1.0%, after recording two consecutive declines in the past quarters. A report by Westpac said that the manufacturing survey is the last component for the GDP’s second quarter growth figure, for which the bank insists that it will come in at 0.8%.

Sterling strengthened against the Swiss Franc, trading at 1.24 CHF. The State Secretariat for Economic Affairs (SECO) announced that the unemployment rate remained steady at 3.2% in August.