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British manufacturing production unexpectedly dropped by 0.4%. A rise of 0.3% was expected. Also Britain’s trade balance disappointed when it widened to 8.9 billion pounds. GBP/USD reacted with a drop back to support.

The disappointing manufacturing figures is in correspondence with the ongoing erosion in the UK’s manufacturing PMI figures, which have even dropped below 50 points in July – which means contraction in this section. The bad news continues:

Also the wider industrial output figure that accompanied the release (and is of lower importance) remained unchanged – short of expectations for a rise of 0.4%.

The pound was trying to rise once again, but couldn’t breach 1.64. The release sent it lower, back to 1.6330, still above support at at the 1.6280 – 1.63 zone.

Further support is at 1.62, followed by 1.6110. Higher resistance is at 1.6470, followed by 1.6550.

The pound started the week higher, with a gap, enjoying the fact that contrary to the US and the euro-zone, the UK doesn’t have a debt problem. It managed to weather the storm started by Trichet’s weak moves – and continued with the historic downgrade of the US by S&P.

Britain has problems of its own. Even without this release, sterling was already losing ground.

Also the riots in the UK hurt the pound: what began in Tottenham on Saturday night has now spread to violence in Liverpool and Bristol as well.

For more levels and upcoming events, please see the British pound forecast.