Dismal UK data sends Sterling lower, ECB set to extend QE programme

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8 December 2016

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Pound registered its largest decline in two months against the Euro on Wednesday after the release of a dire set of industrial production figures bucked the recent trend of impressive news out of the UK economy.

utput from the industrial sector fell sharply 1.1% in the year to October following a severe 1.3% drop on a previous month, its largest monthly fall in four years and significantly below the 0.2% increase expected. Manufacturing production, which makes up a large part of the industrial production data, also fell unexpectedly, declining 0.9% on a previous month.

Figure 1: UK Industrial Production (2012 – 2016)

The Euro spent much of the day treading water ahead of today’s highly anticipated European Central Bank Governing Council meeting. We are in line with the vast majority of economists and expect the ECB to announce at least a six month extension of its quantitative easing programme beyond the existing March 2017 end date – a decision we continue to believe could help drive the Euro lower towards parity with the US Dollar in the coming weeks and months.

We think any mention of potential changes in the technical parameters of the QE programme will be of key importance to the Euro today as the central bank continues its efforts to revive both growth and inflation in the Euro-area. Draghi is very likely to field questions on a potential tapering of the QE programme next year, although we think he will remain characteristically vague.

The ECB will announce its interest rate decision at 12:45 UK time, followed by President Mario Draghi’s press conference at 13:30 UK time. Policymakers will also be releasing an updated set of macroeconomic projections, with any changes to either inflation or growth forecasts to be heavily scrutinised by investors.

Meanwhile, in a busy week of central bank announcements, the Bank of Canada and Reserve Bank of India both kept interest rates unchanged yesterday.

Major currencies in detail


Sterling slipped 0.5% against the US Dollar on Wednesday after yesterday’s industrial production data quashed hopes that the UK economy would end the year on a high note.

Yesterday’s data was a major blow to those hoping for a strong showing in the UK economy in the final quarter of the year, raising question marks over whether the negative effects from the vote the leave the European Union in June were beginning to materialise.

However, the trend is likely to prove temporary, with the sharp drop in production in October primarily driven by a 10.8% decline in oil and gas extraction following the shutdown of the Buzzard oilfield in the North Sea. The weak Pound should also translate into stronger demand from abroad in the coming months.

With no major economic data released in the UK today, attention will be firmly on this afternoon’s ECB meeting.


The Euro rallied slightly ahead of today’s ECB announcement, appreciating 0.35% against the US Dollar.

News out the Eurozone was limited on Wednesday, with investors in a cautious mood ahead of today’s ECB meeting. German industrial production came in slightly less than expected. Output grew by just 0.3% in October compared to the 0.8% consensus, although was somewhat offset by an upward revision in the September numbers.

The ECB will take centre stage today, with both the press conference and release of statement likely to create a volatile trading session in the currency markets.


The US Dollar ended 0.3% lower yesterday, with a barren economic calendar in the US leading to a quiet trading session.

The only real economic release of note was that of JOLTS job openings for October, which jumped more than expected. Job openings increased to 5.534 million compared to the 5.5 million forecast, pointing to a tightening in labour market conditions in the US – one of the main driver behind the Federal Reserve’s plans to gradually begin hiking interest rates again following a whole year unchanged. Quit rates in the US also grew by a healthy 2.1% in the year to October.

With jobless claims the only economic release in the US today, Dollar traders will shift their attention to the ECB’s announcement this afternoon., Hi, I am a new blog post, you can change me, or even delete me!, it is up to you! 😉