By Sara Sjolin and Carla Mozee, MarketWatch

LONDON (MarketWatch) — The British pound dropped against most major currencies on Tuesday after a weak reading on industrial production stoked expectations of further monetary easing by the Bank of England, while the Australian dollar recovered against the dollar.

The pound GBPUSD -0.58% exchanged hands at $1.4871 down from $1.4950 in late North American trade on Monday. The currency had traded as high as $1.4981 earlier in Tuesday’s session but was sent lower after weaker-than-expected U.K. industrial production data spurred doubts about the sector’s recovery. Manufacturing fell 0.8% in May compared with April, while industrial production was flat for the month.

“Such readings are a disappointment coming on the back of more upbeat survey data, with the manufacturing PMI having climbed back into growth territory above 50 in April and remained there since, whilst broader survey data on the sector has also been more upbeat,” said Victoria Clarke, analyst at Investec Securities in a note.

“We view today’s report as providing further ammunition for [Bank of England Gov.] Mark Carney to argue his case for providing the U.K. recovery with a further shot in the arm for recovery at its August meeting, with an announcement on forward guidance now looking almost certain at that meeting but with broader support including an uplift to the [quantitative easing] target also likely,” she said.

Quantitative easing tends to weigh on the related country’s currency.

Aussie recovers

Meanwhile, the Australian dollar AUDUSD +0.35% recovered a bit and traded at 91.74 U.S. cents. It had sat at 91.18 cents just before the National Australia Bank said its survey of business conditions hit a more-than-four-year low and “paints a worrying picture” of Australia’s economy.

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The euro ticks lower, retreating from gains made after news of a Greek aid deal.
The NAB survey sent the Aussie falling below 91 cents, as its June survey of Australian businesses showed a reading on conditions fell to minus 8 points from minus 4 points in May, the weakest level since May 2009.

NAB said its survey indicated business conditions in Australia were “very bad” in the retail, mining and manufacturing sectors despite low interest rates and a decline in the Australian dollar, though signs were slightly better for exports broadly.

Worries about slowing in the Australian economy as it faces a peak in mining investment have contributed to a more-than-12% loss in the Aussie against the dollar this year.

“Domestic weakness implied by this survey, along with softness in China, a weaker terms of trade and financial market volatility, encourages us to bring our next expected rate cut forward to August (previously November), assuming no downside surprises from unemployment or inflation,” NAB chief economist Alan Oster wrote in the survey’s report.

Reserve Bank of Australia Gov. Glenn Stevens earlier this month indicated the bank may further cut the policy interest rate, which currently stands at a record-low 2.75%. NAB said it expects the bias to easing to continue beyond August.

Dollar index regains ground

The ICE dollar index DXY +0.17% , which measures the U.S. unit against six other major currencies, rose to 84.282, compared with 84.172 late Monday in North America. The WSJ Dollar Index XX:BUXX +0.18% , which measures the currency against a slightly wider basket, rose to 76.04 from 75.99.

The indexes were aided by the greenback’s advance against the euro, as the shared currency EURUSD -0.12% bought $1.2866, down from $1.2871 late Monday.

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Europe’s shared currency had risen on Monday, finding some support after Greece reached a deal with international creditors.

The euro’s gain on Monday helped pull the ICE dollar index back from a three-year high, which it reached after U.S. jobs data for June last week reinforced expectations the Federal Reserve will soon start tapering the pace of monetary stimulus to the economy.

Minutes from the Fed’s meeting last month are due Wednesday, and they could provide more insight into when the central bank may start slowing the pace of its asset purchases.

“Given how much the dollar has risen, the minutes may need to show significant support for tapering in September for the dollar to extend its gains,” wrote BK Asset Management managing director Kathy Lien in a note Monday.

“However, even if the [Federal Open Market Committee] minutes do not do the trick, Fed Chairman Ben Bernanke could give the dollar a boost” when he speaks on Wednesday afternoon, Lien said.

Bernanke, who will address the National Bureau of Economic Research in Boston, is expected to take questions from the audience, “an environment that is ripe for him to say something that could cause more volatility in the dollar,” said Lien.

Against the Japanese yen, the dollar USDJPY +0.26% traded at ¥101.11, up from ¥100.96.

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.