Daily Economic Commentary: United Kingdom

[PipDiddy]

After the dropping like a rock on Tuesday, the Cable was able to hold on for dear life and trade sideways yesterday. It started out the Asian session at 1.4994, went as low as 1.4871, before retracing most of its losses to close the US trading session hardly changed at 1.4975.

The early drop in the Cable's value was supported by ugly numbers on its manufacturing and industrial production reports for the month of January. The manufacturing production report showed a 0.9% drop in output, opposite the 0.3% increase initially expected. Similarly, industrial production contracted 0.4% instead of growing 0.2%. The unexpected drop in production has caused some analysts to speculate that UK's economy could fall back into the recession hole in the first quarter this year!

However, thanks to some stronger-than-expected manufacturing data from Italy and France from euro zone later in the day, the Cable was able to erase some of its losses. Remember, euro zone is a major trading partner of UK and improvements in its economy could spill over to them.

On the docket today is the consumer inflation expectations survey. As the name suggests, the survey reports how much consumers expect the prices of goods and services to increase or decrease for the next 12 months. For the last three months, the survey showed that consumers expect prices to increase 2.4%. Will we see the same later at 9:30 am GMT?

[PipDiddy]

Finally! After falling the first three days of the week, the pound bounced back yesterday. The GBPUSD pair closed almost a 100 pips higher to end the day at 1.5060. Could this be the start of a comeback for the cable?

The cable got a nice boost from inflation expectations survey's results, which printed that the British public expects inflation to be at 2.5% one year from now. This came after recent data indicated that UK inflation exceeded the Bank of England's target of 2%. If inflationary pressures continue to persist, will the BOE consider to unwind quantitative easing measures?

The skeptic in me says, probably not. Why? Well, there aren't just enough signs pointing to a stable UK recovery. Until there is more evidence that the UK economy can really stand on its own without any help from the BOE, we probably wont see a rate hike or a tightening of the asset purchase facility for some time.

Nothing major coming out from the UK today but as always, I'm going to watch out for report due from other countries. With the recent change in sentiment that led to pound buying yesterday, who knows what may happen today!

[PipDiddy]

Up, up, and away! The pound soared against the greenback and the yen during the end of the trading week as risk appetite boosted demand for higher-yielders. Would it be able to stay up this week?

Aside from enjoying a nice boost from increased risk tolerance, which resulted from a stronger than expected US retail sales report, the pound was also able to rally after BoE Chief Economist Spencer Dale noted that there were tentative signs of faster spending in the UK economy. Although he pointed out that it was still too early to judge the impact of the central bank's asset purchase program, he assured that the quantitative easing policies are finally starting to work their magic. Still, he reiterated that the BoE is ready to conduct more asset purchases if the economic outlook warrants it.

Moving on... The UK just released its Rightmove HPI a few hours ago and it printed a 0.1% rise in house prices for the month of March. This was a slightly moderated uptick compared to the 3.2% increase seen in February. Tomorrow, another housing market indicator will be released, this time in the form of the DCLG HPI. It could show a 3.6% increase in house prices for January.

Also due tomorrow is the CB leading index for the UK economy. The leading index has been climbing at a decreasing pace for the past three months prior to January. No forecast has been given but another uptick for January could provide support for the pound.

More high-impact reports are due Wednesday this week. Brace yourselves for the release of UK's claimant count change, which could print an 8.4K increase in the number of people claiming unemployment benefits for February. This would be almost one-third of the number of claimants in January and, if the actual figure is lower than consensus, the pound could climb higher. The average earnings index and the unemployment rate are also due then.

The MPC meeting minutes will also be released on Wednesday. This could show that the BoE policymakers are still unanimous with their vote to keep a lid on their current asset purchases.

Thursday's schedule has public sector net borrowing data due. The report could show that net borrowing rose from 4.3 billion GBP to 14.6 billion GBP in February. Also due Thursday is the CBI industrial orders expectations report, which could climb from -36 to -33 in March.

Keep your eyes and ears open for any comments regarding the BoE's current and future monetary policy stance. Speeches from BoE officials this week could provide some hints on that. MPC members Charles Bean, Andrew Sentance, and Paul Tucker are scheduled to testify this week.

[PipDiddy]

After hitting a fresh 2-week high last Friday versus the greenback, the Cable (GBPUSD) seemed to have hit a wall at the 1.5200 handle. The pair fell by about 150 pips shortly after revisiting the mentioned level yesterday. The GBPUSD dropped to and closed at 1.5057 from 1.5176.

No economic reports were released in the UK yesterday. The pound slipped during the beginning of the London trading session as fears that the British government won’t be able to address its debt problems mounted. Presently, the government has plans of reducing its deficit to 4.4% of its GDP by 2015. Rating agencies, like Fitch, say that it should bring it down more to 3% of its GDP.

The UK’s economic calendar is report-free again today. Though, the pound would most likely experience some volatility later with the release of the Fed’s interest rate decision. While the Fed is still widely expected to maintain its rate at 0.25%, its outlook on the economy may have turned bullish given the surprise jump in the recent US retail sales. Any hawkish statement by the FOMC could be bearish for the anti-dollars like the GBP.

[PipDiddy]

The Cable finally found itself swimming above the 1.5200 handle yesterday. It started off the Asian trading session pretty slow, consolidating in a tight 40 pip range. However, once the European and US sessions went underway, the pair just blew up and staged a magnificent rally to close the day at 1.5250, almost 200 pips higher from its opening price.

No “real” data came out UK yesterday but we'll be seeing the Claimant Count Change, the unemployment rate and the Monetary Policy committee meeting minutes once the clock strikes 9:30 am GMT later.

The Claimant Count Change measures the change in the number of people who claimed for unemployment benefits in the given reporting period. The consensus is that 8,200 people were added to the count in February, which is a huge difference from the 23,500 increase the month before. Meanwhile, joblessness in UK is predicted to have remained at 7.8% in January.

More importantly, the Bank of England will release the MPC meeting minutes. The MPC meeting minutes basically outlines how the MPC voted on the most recent interest rate decision. It is widely expected that all of the members voted for no rate hike so traders will probably put more attention to the reason behind their decision.

[PipDiddy]

For the second day in a row,the GBP bulls went to work, as pound pairs found themselves hitting two-week highs! The GBPUSD closed at 1.5326, up over 70 pips for the day.

The rise of the pound was due to some encouraging data released yesterday. First, the UK labor market finally got some good news, as the Claimant Count change report came in much better than expected. The report indicated that the number of people who filed for unemployment benefits fell by 32,300 after consensus was for a rise of 8,200. Furthermore, last month's claims were revised down from 23,500 to just 5,300!

Also released yesterday was the minutes of the latest MPC meeting. One interesting issue that was brought up in the MPC minutes was the issue of new inflation risks. Rising inflation? Is it time for a rate hike!? Not so fast my young padawans – the BOE is still pretty cautious about the overall state of the economy. The BOE needs to see more signs before they will even begin to whisper the possibility of a rate hike.

On deck today, we've got the Public Sector Net Borrowing account figures due at 9:30 am GMT. The account measures how much the government has been spent or saved in the past month. It is expected that a deficit of £14.6 billion will be posted.

Later on at 11:00 am GMT, the CBI industrial orders expectations index is scheduled for release. Forecasts are for a score of -33, still below the baseline 0 mark. However, the index has been showing improvement over the past few months. If we see a much better than expected reading, who knows what might just happen in the markets... Another round of pound buying perhaps?

[PipDiddy]

The pound weakened yesterday as the public sector net borrowing for February pushed the UK's debt to GDP ratio much higher. As a result he cable slid to the 1.5300 area while the guppy fell to a low of 127.03.

Public sector net borrowing amounted to 12.4 billion GBP in February, bringing the government's total borrowing to 131.867 billion GBP this year. Despite these eye-popping figures, pound bulls were able to take comfort in the fact that the government's debt is still under the projected 170.4 billion GBP deficit for the first quarter of 2010.

The UK won't be releasing any economic reports today but watch out for BOE monetary policy committee member Paul Tucker's speech at 10:35 am GMT.

[PipDiddy]

After starting the week strong, the pound eventually squandered its huge lead to close the week behind the USD and JPY. It’s only win came over the debt-stricken EUR with the EURGBP slipping to 0.9012 from 0.9079. The GBPUSD, on the other hand, fell and closed at 1.5013 after reaching a high of 1.5383 from 1.5176. Similarly, the GBPJPY sunk to 135.93 from 137.86.

No economic reports were due in the UK last Friday. The pound, however, suffered a huge loss when India’s surprise interest rate hike sparked some speculation that the tightening measures that are starting to be implemented by the central banks in the world could constrain the global economic recovery.

Today (4:30 pm GMT), BOE Governor Mervyn King is set to speak at the Royal Society, in London. Being the head of the central bank, traders could then look into his speech for clues regarding the bank’s future monetary policies. Any hawkish statement could be bullish for the GBP.

Tomorrow, the UK’s annualized CPI for will be issued. The UK’s annualized headline CPI is seen to cool down a bit to 3.1% in February from 3.5%. The core version of the account is also seen to be at 3.0% from 3.1%. An interest rate hike or a removal of any of the BOE's current stimulus programs would be less likely given a drop in the UK’s inflation figures. This, though, could be bearish for the GBP.

The UK’s BBA mortgage approvals and CBI realized retail sales will also be released during tomorrow. The latest number of new mortgage approved for home purchase is seen to be at 34,300. The UK’s CBI realized retail sales index, on the other hand, are seen to have dropped to 20 from 23 which indicates a slightly lower level of sales during the latest period.

On Wednesday, the UK’s annual budget balance will be published. The British government is not expected to cut on its deficit for this year. This will only put more pressure on the GBP given its already high outstanding debt.

The UK’s retail sales will be on tap on Thursday. Sales at a retail level are projected to have increased by 0.6% in February after sliding by 1.8% during the previous month. With the CBI retail sales index seen to have fallen, the UK’s actual retail figure could come in weaker than expected as well.

[PipDiddy]

The GBPUSD turned out to be one of the stronger currencies in yesterdays trading session. It closed the US session just a few pips above the 1.5100 handle, around 100 pips from its Asian session open price.

There is a bunch of data to watch out for today, so be on your toes.

The UK's consumer price index kicks the party off at 5:30 pm GMT. The expectation is that prices increased by 3.1% in February, slightly lower than the previous month's 3.5% rise. Meanwhile, the core version of the report that excludes the prices of volatile items such as food and energy is predicted to show a climb of 3.0% in prices.

Keep a close eye on the actual results of the report because the BOE said earlier today that inflation could tick down a couple of notches as economic conditions remain weak. Low inflation would give the BOE more reason to keep interest rates accommodative at 0.50%.

Also released at the same time is the BBA mortgage approvals report. It is predicted show that 34,300 mortgages were approved in February, down the 35,100 from the previous month. Generally speaking, rising mortgages reflect how financially stable consumers are because people need to first be financially qualified to take out mortgages.

Lastly, at 11:00 am GMT, the CBI Distributive Trades survey is due. The consensus is a reading of 18 for this month, up from February's 23. A reading above base line zero means that the sales volume of retailers and wholesalers are growing.

[PipDiddy]

The pound slid lower on a round of bad news yesterday, preventing it from capitalizing on its rise on Monday. The GBPUSD pair fell about 50 pips from its opening price to end the day at 1.5048.

The CPI report was released yesterday and as expected, failed to impress. The annualized rate fell to 3.0%, much lower from the 3.5% figure posted last month. Why is this significant? Well, this gives the BOE more room to breathe for its quantitative easing measures. While inflation is still above the BOE's target rate of 2.0%, some economists have said that they expect inflation to be subdued and that it will eventually below that threshold.

Furthermore, this may eventually allow the BOE to even expand their asset purchase facility and not worry about keeping rates at low levels for an extended period. This in turn could lead to bearish sentiment towards the pound over the next few months... which is probably what the BOE wants! As Forex Gump said in a recent post, the BOE may actually want the pound to weaken in order to help their debt problems...

Meanwhile, the UK housing market got a bit of good news, as mortgage approvals were at 35,300, higher than the projected figure of 34,300.This marked the first increase in 3 months.

Still, the markets really didn't mind this data too much, as once again, they focused on the bad news that came in the form of the CBI realized sales index. The index failed to hit the consensus reading of 18, printing a score of 13. This indicated that sales volume is dropping and that consumer spending in the UK is still weak.

Today, we may see quiet trading during the earlier parts of the European session, as traders may be gearing up for the release of the annual budget. Remember, the UK government is neck deep in debt - if there are signs that their debt levels will only grow this year, it could trigger another round of pound selling.