Sterling retreats

Sterling retreated from its highest levels in seven weeks on Wednesday after British industrial output data for July painted a less rosy picture of the economic aftermath of Britons' vote in June to leave the European Union. The fastest fall in manufacturing output for a year - 0.9 percent on the month - was followed by testimony from Bank of England (BoE) policymakers in parliament which stood by the decision to ease monetary policy aggressively last month.
Governor Mark Carney said he was "absolutely serene" about the judgements the bank had made, even after a handful of more upbeat purchasing manager surveys which suggest the initial hit from the "Brexit" vote was less than previously thought. The pound, which sank after the BoE eased policy a month ago, fell 0.7 percent on the day to $1.3348 and 84.17 pence per euro by 1515 GMT.
Sterling has rebounded about 5 percent against the dollar since hitting a three-decade low in July "Sterling has been lifted in recent weeks by very strong data, but this output data shows it's been a pretty mixed bag following the referendum," Societe Generale currency strategist Alvin Tan said.
"I think what's probably more important now is the August number because of the most recent bounce that we saw in the PMIs (surveys of purchasing managers) ... but we continue to see further downside risk to sterling." While on the back of PMI surveys the pound has proved more robust than many banks were expecting a month ago, dealers say extremely volatile daily moves in the currency reflect the lack of conviction that it can gain strongly from here.
Manufacturing output fell more than the 0.4 percent decline forecasted by economists. But overall industrial output unexpectedly rose thanks to strong oil and gas production, the Office for National Statistics said. The data were the first official figures to cover output solely for the period after the June 23 Brexit vote. Britain was plunged into political chaos in the weeks after the vote and before the formation of a new government under Prime Minister Theresa May.
"I do think we were all a bit euphoric about the (PMI) numbers," the head of currency trading at one large Asian bank in London said. "They have seen the flash benefit from a collapse in the currency but let's see what our economy looks like in six or 10 months time."
He said sterling's tendency to move a full cent each day had hurt bank traders trying to keep a limit through automatic "stop-loss" orders on the amount of risk they are exposed to. "I was blown out by the scale of the jump yesterday because in this situation you have to have your stops in place," he said. "You just have to downsize your position so you can ride these bumps. But at least it's moving every day so you always have a chance to catch some profit in the move."