Forex Market Update: Sterling Falls to a 2-½ Year Low Against Dollar, Yen Gains

The Pound Sterling slumped to a 2-½ year low level against the U.S. dollar after worse than expected economic data release stoked speculation that the Bank of England (BOE) will be forced to provide more economic boosting measures in order to lift the U.K. economy from stagnation.

The Sterling fell to $1.4832, its lowest level since late June 2010, immediately after the data release showed that manufacturing output in January contracted at a fastest pace since June. The Manufacturing output fell by 1.5% while economists were expecting it to rise by 0.1%.

The Pound sterling year-to-date remains one of the worst performing currencies against the greenback. Thus far it has plunged 8.5% against the U.S. dollar and 7.6% against the euro, showed a data provided by Reuters.

Analysts say that in order to stimulate the U.K’s economy, the BOE will kick start 25 billion pounds’ ($37 billion) worth monthly bond purchase program, which in turn will put more pressure on the sterling as its supply will increase in the system.

Speaking to Reuters, Neil Mellor at the Bank of New York Mellon said, “There are concerns on just about every front for the UK,; Political concerns, whether there will be another downgrade, the budget and whether or not we will see more monetary stimulus. Everywhere you look there is a negative.”

Meanwhile the yen edged up against the U.S. dollar for the first time in a week on Tuesday, rebounding from a 3-1/2 year low, as speculators and money managers booked profits on large bets taken recently against the Japanese currency.

However, traders said that expectations over unprecedented monetary easing from the Bank of Japan should Haruhiko Kuroda become the next Chief of the Bank of Japan (BOJ), will keep check on any sharp rebound on yen, according to Reuters.

edliston

edliston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.