GBP/USD Refuses to Fall Despite the Squeeze in Manufacturing

British manufacturing production fell by 0.1% in December. This is very disappointing as expectations stood on a rise of 0.5%, similar to last month’s 0.6% rise. GBP/USD is rather stable at 1.6033, as tensions towards the rate decision mount.

This is the first fall in manufacturing production in 8 months. The wider figure, industrial production, rose by 0.5%, as expected. The focus is on manufacturing, which is 80% of the whole industry. The fall could be related to the bad weather felt in Britain during December.

The pound and the euro fell earlier in the day against the US dollar. This is related to the greenback’s strength rather than anything from these currencies. GBP/USD fell from the 1.6110 resistance line to 1.6040 before the release, and is now trading only marginally lower.

Very strong support is found at 1.60, the round number which was also the peak in August. It’s followed by minor lines at 1.5910 and 1.5840. Looking up, 1.6110 is resistance, followed by the mighty 1.63.

While manufacturing production is an important release, cable traders are expecting a much bigger event – the rate decision. In many occasions, this was a non-event, as everybody expected an unchanged rate at 0.50%. This time, as inflation is on the rise, there were already two members voting for a rate hike in the previous decision. A majority of 5 out of 9 is needed.

With governor Mervyn King still opposing a rate decision, the chances are slim. Does this fall in industrial output convince everybody that the bank should wait? Not necessarily, as it relates to December, while January’s PMI figures have shown a far better picture of the economy.

Here’s a preview for the British rate decision.

These are very interesting times for the Bank of England and the British pound.

Further reading: GBP USD Weekly forecast.