Forex - GBP/USD falls to session lows after U.K. data

The pound erased gains against the dollar on Tuesday after official data showed that U.K. manufacturing output fell by the most in four months in May, while industrial output was flat.

GBP/USD hit 1.4881 during European morning trade, the session low; the pair subsequently consolidated at 1.4884, shedding 0.44%.

Cable was likely to find support at 1.4856, Monday’s low and a four-month low and resistance at 1.4965, Monday’s high.

The Office for National Statistics said that U.K. manufacturing production fell 0.8% in May, compared to expectations for a 0.3% increase
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Manufacturing production fell at an annual rate of 2.9% in May, compared to expectations for a 1.6% decline. 

The ONS said industrial production was flat in May, disappointing expectations for a 0.2% increase, and was 2.3% lower on a year-over-year basis.

A separate report showed that the U.K. trade deficit widened to GBP8.49 billion in May, a six month high, from a deficit of GBP8.43 billion in April. Economists had forecast a deficit of GBP8.47 billion.

The data dampened expectations that the economic recovery is gaining momentum, after data last week showed that service sector activity in the U.K. expanded at the fastest pace since March 2011 in June, while manufacturing activity expanded at the fastest pace in more than two years.

Earlier Tuesday, private sector reports showed that U.K. house prices rose in June, and retail sales increased last month.

Last week the Bank of England indicated that interest rates are likely to remain at record low levels, given weakness in the U.K.’s economic recovery.

Meanwhile, demand for the dollar continued to be supported by expectations that the Federal Reserve will start to unwind its asset purchase program later this year.

Sterling fell to four month lows against the euro, with EUR/GBPadvancing 0.45% to 0.8644.

Finance ministers from the European Union were to hold talks in Brussels later Tuesday.