Forex News – Sterling falls on weak manufacturing data but soon recovers

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Sterling spiked down 30 pips against the Dollar upon release of weak manufacturing data. GBPUSD dropped to 1.6216 from 1.6246 within a minute but soon recovered almost immediately to rise to 1.6284 within 20 minutes.

UK manufacturing output recorded its biggest monthly decline since January 2009, falling worse than expected to 1.5% in April from a prior 0.2% increase. Economists predicted output to remain flat.

On a year on-year basis, April manufacturing fell to 1.3% compared to April 2010, lower than the predicted 3.3 growth and also rose less than the previous 2.7 increase compared in March.

Sterling soon recovered almost all the losses incurred during that minute since investors had already factored in the weak data. Analysts attributing the sharp fall in industrial output to one-off factors that are temporary and not long-term. For example, They blame the weak numbers on the long royal wedding holiday weekend, Japan’s earthquake disrupting supply chains and imports from Japan, , and record warm weather.

“Market rumours were for -4.5 pct so everyone was short going in to it,” says a trader in London. “Whilst a bad number, it wasn’t as bad as expected. Classic sell-the-rumour, buy-the-fact.”