The pound that dropped to multi-day lows against most of its major counterparts in the early European session on Tuesday regained momentum in early New York trading. The pound thus surged to new multi-week highs against the euro and the Swiss franc.

The pound weakened in early trading after a report showed that the UK manufacturing output in three months to February recorded the largest decrease since the records began in 1968.

The Office for National Statistics reported 6.5% decline in UK manufacturing output during three months to February compared with the three months to November 2008. This was the biggest decline since 1968. Output was 12.2% lower than the same period a year ago.

In February, manufacturing production slipped 0.9% from the previous month taking the annual decline to 13.8%. Economists were looking for a monthly fall of 1.5% and an annual 14.2% drop in February. Annual fall in February was the largest since 1981.

At the same time, industrial production declined 1% month-on-month in February. Economists had expected output to fall 1.2% in February, following a 2.7% decrease in January. Year-on-year, industrial production was down 12.5% in February, in line with economists' expectations. This was also the biggest drop on record.

The pound advanced to 0.8992 against the European common currency by 10:35 am ET, the highest level since March 9. On the upside, resistance is seen at the 0.895 level for the pound.

The pound has been trading higher against the euro since it dropped more than a 7-week low on March 18. Since then, the pound has gained more than 5 percent. The euro-pound pair that closed Monday's trading at 0.9086 is currently worth near 0.90.

The euro declined after a final report from the Euro-stat showed today that gross domestic product, or GDP, contracted 1.6% quarter-on-quarter in the final three months of 2008. The pace of decline was slightly up from the previously estimated fall of 1.5%. GDP fell 0.3% each in the third and second quarters. The statistical office also revised fourth quarter annual GDP decline to 1.5% from an initial fall of 1.3%.

The pound rose to near a 6-week high of 1.6904 against the Swiss franc by 10:35 am ET, compared to yesterday's close of 1.6787. The pound has gained almost 4 percent against the Swiss franc in April and the next upside target for the pair is seen around the 1.696 level.

The British sterling soared to 148.60 against the Japanese yen by 10:35 am ET, from a 4-day low of 145.89 hit around 6:15 am. The pound-yen pair that was 149.21 at yesterday's close is currently trading near 148.7.

Today, the Policy Board of the Bank of Japan unanimously voted to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations. The previous change in interest rates was a 20 basis point cut implemented in December 2008.

The BOJ also unveiled further steps to ease credit strains, announcing it would start lending against a wider range of municipal debt to support regional banks.

BOJ Governor Masaaki Shirakawa said the Japanese economy is worsening more than the bank had forecast in January and that financial conditions are likely to remain severe.

Against the US dollar, the pound advanced to 1.4779 by 10:35 am ET from a 5-day low of 1.4585 hit around 6:15 am. The cable that closed Monday's trading at 1.4772 is currently quoted near 1.477.

Looking ahead, the U.S. Federal Reserve is expected to release its monthly consumer credit report at 3:00 pm ET. Consumer credit for February is likely to show a decline of $1.5 billion.

In January, consumer credit rose by $1.8 billion to $2.56 trillion, as revolving credit rose by $0.9 billion to $0.96 trillion and non-revolving credit rose by $0.8 billion to $1.6 trillion.

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