Daily Economic Commentary: United Kingdom

[PipDiddy]

Looks like the Pound bulls are getting tired of running the uphill path on the charts! GBPUSD struggled to stay above the 1.5400 handle and slipped midway through the London session. Without any economic report to cheer them on, the Pound bulls let the pair finished at 1.5300 as it appears that risk aversion came back in force.

With stocks selling off on Friday, it seems to me that risk aversion was the major theme last Friday. This didn’t bode well for the pound, which dropped against its major counterparts. Let’s see if this carries onto this week or if Pound bulls will find this as an opportunity to buy at a cheaper price.

Uh oh, it seems like the bears still have the upper hand in Cable mara-pip-thon powered by yesterday’s disappointing house price index. Late yesterday, the Rightmove’s HPI revealed that the asking price of homes for sale fell by 0.6% for July after posting a 0.3% growth for June. Hmmm… is the housing market showing more signs of weakness?

We have a few high-caliber reports set to be released this week. The most important ones you have to look out for are the Bank of England minutes on Wednesday, retail sales on Thursday and GDP on Friday.

The BOE’s report is perhaps the most heart-pounding of the three. If you’ve been keeping tabs on Britain, you’ve probably heard of the impressive numbers that the economy has been printing. Some currency traders are wondering if monetary policy committee has grown less dovish with increasing consumer prices and decreasing claimant counts. Now, the ultimate question is, can the BOE report give the Pound bulls the adrenaline rush that they need? Stay tuned to the report and find out yourself.

[PipDiddy]

Last Sunday, the Rightmove housing data showed that UK’s Humpty Dumpties were sitting on cheaper walls. Was that why the pound had a great fall?

GBPUSD closed 46 pips lower than its open price at 1.5230 after an intraday high of 1.5352, while EURGBP soared to .8499 from its open price of .8448.

The largest property website reported a 0.6% decrease in the asking price of home sellers, its first decline this year. Apparently, the tighter lending rules and the government’s budget plans spooked the buyers from buying new houses. This might be bad for their economy since less purchases of homes can dampen construction and consumer spending.

Of course, it didn’t help that traders are now having warm fuzzy feelings for the euro. After being in the deep for so long, traders are now taking profit in their short euro positions, which caused the pound to lose weight against the common European currency.

Will the light data today give the pound weight? The mortgage approvals due 8:30 am GMT is expected to increase by 2,000 from May’s 50,000, but a higher number might mean that more people are eligible for a loan.

The net borrowing of the public sector will also be released at 8:30 am GMT. A figure lower than the expected 13.2 billion GBP from May’s 16 billion GBP might indicate that the government is making progress on their proposed budget cuts.

At 10:00 am GMT, CBI is set to release their manufacturing data. Maybe the budget cuts lowered the index expectations to -24 from June’s -23, but a better figure might indicate confidence in the economy’s growth.

[PipDiddy]

I hope you didn’t get motion sickness from all the wild moves we saw from Cable yesterday! Traders were in for quite a ride on the GBPUSD train as it started the day off at 1.5233, plunged down to 1.5154, and closed at 1.5282.

What caused GBPUSD to chug up and down the charts was perhaps the mixed feedback the UK received from yesterday’s releases.

On one hand, the preliminary mortgage approvals figure came in disappointingly, showing just 48,000 new mortgages for home purchases in June, which is 2,000 short of the record in May, and 4,000 short of what was expected. This comes as bad news because it could be interpreted as a sign that construction activity would be down in the future. After all, how will construction prosper if people don’t have the funds to buy new houses!

But on the plus side, public borrowing clocked in at 14.5 billion GBP in June. Over the coming months, most are expecting public borrowing to come in weak as the government tries to put a dent into its large public debt. So although the June number marks a decline from the 16 billion GBP that was seen in May, it still comes in as an upside surprise as it managed to exceed expectations of 13 billion GBP.

It looks like we’re in for a break from economic reports today. But do catch the MPC meeting minutes release at 8:30 am GMT. This one is particularly interesting because we might finally find out what Sentance, the lone BoE member who voted for a rate hike last July 8, sees that nobody else does.

[PipDiddy]

As risk aversion directed the currency market’s traffic yesterday, the Pound virtually had no choice but to take a backseat to the dollar. The bears drove GBPUSD from the intraday high of 1.5335 and parked the pair at 1.5177 to end the day.

But this is not to say that the Pound went down without a fight. No sir! In the late Asian and early European trade, they were able to hold on and recover GBPUSD after the pair fell more than 100 pips in two minutes! Wth happened? Another fat fingers episode? Some leaked data? In any case, the pair bounced right back up and chilled out before the minutes of the latest BOE meeting were released.

Much to the dismay of the Pound, good ol’ Sentance’s hawkish stance wasn’t enough to rev up the bull engine. Seven out of the eight monetary policy committee members voted to keep rates on neutral gear despite the increase in inflation and improvement in the labor market. The doves insisted that the heightened inflationary pressure is only due to temporary factors and there is no reason for the BoE to tighten its monetary policy.

But today’s a new day. Can the Pound make a u-turn and cruise up the charts?

Hmm, based on today’s reports it seems like it will still continue on its downhill roadtrip. Retail sales figures will be made available to the public at 8:30 am GMT. Analysts are expecting a decrease from last month’s 0.6% reading to 0.5% in June which would translate to an annualized increase of 1%. There is also the release of the EU Stress Test results tomorrow which many point out as the primary cause of risk aversion in the markets. Yikes! Good luck on your trades today!

[PipDiddy]

Score one for UK! Spain may have won the 2010 FIFA World Cup, but UK bagged another prize yesterday after the sport-related purchases kicked the retail sales upward and boosted the pound. EURGBP climbed by 25 pips at .8442 from its open price, while GBPUSD rocketed to a 1.5264 close after an intraday low of 1.5151.

The 0.7% retail sales growth in June gave the pound bears a reason to cheer, especially when analysts only estimated a 0.5% increase. This dampened concerns that the economy would slip into another recession and spurred demand for the pound.

Will UK score another one today? Their quarterly GDP report will be out at 8:30 am GMT. The figure is expected to grow by 0.6% from last quarter’s 0.3% growth, but a better than expected figure might signal that the recent developments were more than leftover highs from the famous sport.

The BBA mortgage approvals will also be released at the same time. The figure beating the expected June’s 37,000 approvals from May’s 36,700 might be good for consumer spending since it implies that more people are eligible for mortgage loans.

[PipDiddy]

GBPUSD ended the week on a high note with a lot of help from improving fundamentals. The pair entered the weekend at 1.5422, about 160 pips higher than its weekly opening price.

Sterling bulls got quite the surprise when the preliminary GDP data for Q2 of 2010 almost doubled the forecasts for a 0.6% expansion by showing a 1.1% quarterly growth. It’s easy to see why investors were so eager to buy up the Sterling, as the most recent GDP report marked an awesome improvement from the modest 0.3% growth in Q1 2010.

Hmm... It looks like the healthy GDP figure left investors optimistic about the economy’s ability to withstand the possible risks to future growth presented by the government’s austerity plans.

For the week ahead, you’ve got a couple of headliners from the UK coming your way.

At 10:45 am on Wednesday, BoE governor Mervyn King is set to take the stage and testify before the Treasury Select Committee. Being the “main man” in the central bank, he has the ability to move the markets if he drops clues about future interest rates and monetary policies. As always, watch for hawkish comments that tend to drive the Sterling bulls to go on a buying frenzy.

Also, the Nationwide HPI report will be available anytime this week. Last month showed a modest 0.1% increase in home prices. But in July, analysts believe houses declined in value by 0.4%. Sorry to tell you this bulls, but your party might come to an end if results come in worse than expected!

[PipDiddy]

Do you smell what the Pound is cookin’? If you answered pips, then give yourself a pat on the back! After opening the week at 1.5421, the Pound wrestled the dollar and tapped its three-month high at 1.5520 before ending Monday at 1.5486. Boo yeah!

There weren’t any economic reports from Britain yesterday, so what powered the Pound bulls to choke slam those bears?

Hmm, I have a pretty good feeling that it was a tag team effort from last week’s preliminary GDP release and the EU Stress Test results. Why? It’s because National Statistics reported that the economy grew by 1.1% in the second quarter which was almost twice as much as the market’s forecast that was at 0.6%. Also, the results of the EU Stress Tests revealed that none of the seven banks that failed came from the UK. And that was the steroid combo that spurred the Pound bulls into a rally.

But that was yesterday... Let’s concentrate on what we have for today shall we? At 10:00am GMT, we’ll hear from the Confederation British Industry as it reveals its Distributive Trades index. It is expected to show that consumer spending was better in July with its forecast up at 3 from June’s -5 reading. Will this be enough the Pound continue its reign as the HeavyPip Currency Champion of the Charts? If the actual figure comes out better than expected, it just might be!

[PipDiddy]

Even though California girls have their daisy dukes with bikini tops on, there’s no lack of summer lovin’ in UK. In fact, UK’s summer sales data even brought the pound bulls out in the sun, with GBPUSD puttin’ its hands up to a 1.5595 close after an intraday low of 1.5443.

Yesterday the Confederation of British Industry reported UK’s fastest retail sales growth in three years. Brits, apparently, can’t resist shopping on a warm weather with all the summer discounts and World Cup frenzy.

The retail sales balance went up to +33 after printing -5 last June. This implied that consumer spending remained healthy despite the country’s growth concerns, and got the optimist retailers singin’ “That’s undeniable! Fine, fresh, fierce we got it on lock – until next month, that is.”

UK will take a break from all the partyin’ today, with only BOE Governor Mervyn King’s speech before the Treasury Committee in London to look forward to at 8:45 am GMT. Will he extend the party with hawkish news? Don’t miss all the fun!

[PipDiddy]

I guess what they say is true - what goes up must come down! After scrambling up the charts four days in a row, the Sterling finally went down for the count during yesterday’s trading sessions. It started quite strongly, rising to an intraday high of 1.5640. But by the end of the day, it fell from the sky and GBPUSD dropped 10 pips from its opening price to close at 1.5585.

Cautionary flags were raised when BoE Governor Mervyn King took to the stand yesterday. He warned the public that the UK economy is facing the very real threat of stagflation, which occurs when prices are rising, but the economy isn’t truly growing. In the past, the BoE has said over and over that the strong inflationary pressures plaguing the economy are temporary. Could this be the BoE’s way of saying inflation is here to stay?

Later today at 6:00 am GMT, Nationwide will publish its house prices index, which is slated to show a 0.3% decrease in prices in July following the 0.1% uptick last month.

Then at 8:30 am GMT, the BoE will release its net lending to individuals report. Analysts are expecting to see the total value of new credit issued to consumers shrink from 1.5 billion GBP to 1.3 billion GBP in June.

Capping off the day is the GfK consumer confidence report, which most expect to show a greater degree of pessimism. A reading of -20 is anticipated for July, following the -19 reading of June. Catch it at 11:01 pm GMT!
Keep your eyes peeled, folks! If these reports print upside surprises, the Sterling could get back to its feet and leap high once again

[PipDiddy]

“It’s gonna take a lot more to rain on our parade!” said the Pound bulls last Friday after they went on with their buying spree despite weak economic data from the UK. GBPUSD ended the week at 1.5691 after hitting an intraday low of 1.5552. Meanwhile, EURGBP dropped 72 pips from its open price at .8305.

The GfK consumer confidence data might have limited the Pound’s gains after it printed a pessimistic reading of -22, its lowest level in eleven months. Hmm, it seems that the government’s tax and spending plans are starting to spook more people as June’s figure was only at -19.

But the bulls were just too energized from the previous retail sales and GDP data as they boosted the Pound across the charts. GBPUSD even tapped a 5-month high above 1.5700 last Friday!

Will this week’s economic data keep the bulls charged? The PMI reports might give more details on UK’s growth when the manufacturing PMI is released today at 8:30 am GMT, while the services PMI is due on Wednesday at 8:30 am GMT. Better than expected figures might mean that business outlook remains healthy despite weak consumer confidence.

The monthly manufacturing and producer input prices will also be released on Friday at 8:30 am GMT. Manufacturing production is estimated to rise by 0.5% after May’s 0.3% growth, while the price of raw materials purchased by manufacturers is expected to decline by 0.4%. A higher figure for manufacturing and a lower one for raw materials might signal increased production from UK.

The highlight of the week though, will belong to the BOE, as they will announce their interest rate decision on Thursday at 11 am GMT. Many expect the rate to remain at 0.50%, but the BOE might give clues on their future policies and decisions, so don’t miss anything!