Daily Economic Commentary: United Kingdom

[PipDiddy]

With the London markets closed, the pound started off the week on a sour note, as risk aversion took over markets. GBPUSD dropped 100 pips from its highs for the day, closing at 1.5461. Could this be a sign of worse things to come later this week?

The only report that came out from the UK yesterday was the Gfk consumer confidence index, which thankfully printed better than expected. The index printed a reading of -18, beating consensus of -23 and was a slight improvement from July. Take note, this marked the first time in six months that the index improved. Still, with austerity measures just starting to kick in, let’s see if this turns out to be a one month anomaly.

Looking ahead, keep an eye out on net lending figures due today at 3:00 am GMT. About 700 million GBP is expected to have been issued last July, up from the 600 million GBP figure given out in June. If the report indicates that lending has dipped in the past month, it may trigger another pound sell-off.

Lastly, do take care my Forex friends, as London traders will coming back in from their long weekend. Who knows if they’ll have a weekend hangover, or if they’ll reposition their positions in light of what happened yesterday.

[PipDiddy]

No thanks bad data from UK and the slight case of risk aversion, the pound bulls had their butts handed to them. Cable fell to its lowest level since July at 1.5328 while Guppy hit a new 3-month low at 128.70.

Yesterday, the lending figures that were released fell below expectations and printed 90 million GBP versus the 700 billion GBP initially expected. The figure given out in June was also revised down to 520 million GBP.

Anyway, enough of the past! It's a brand new day , so let's see what reports we have got on the docket today that can affect the pound! According to the economic calendar, we will see the manufacturing PMI from UK. Scheduled to come out 4:30 pm GMT, the report is predicted to print a reading of 57.0 for August, which is slightly lower than the 57.3 reading seen the month before. If the actual figure comes in higher-than-forecast, we may see Cable test 1.5400.

[PipDiddy]

Because risk appetite made the market tik-tok yesterday, the pound was able to wake up today feeling like Pip Diddy. Hah! GBPUSD traded higher yesterday after it opened at what would be its intraday low at 1.5334. Awesome! Too bad it wasn’t able to go beyond the psychological handle as it just peaked at 1.5492 before ending the day at 1.5453. But a win is still a win, right?

So I guess the pound looked like Mick Jagger despite UK’s disappointing manufacturing data to enough to convince the bulls not to kick it to the curb. Yesterday, we saw that the manufacturing PMI for August fell to its lowest in nine months! Analysts had been expecting a modest increase to 57.0 from July’s 56.9 reading. Ouch! Maybe traders were just satisfied that it didn’t fall below 50 and implied that the sector is still expanding.

I wonder if there’s enough risk appetite in the market and positive economic reports for the pound to continue its rally up the charts. Let’s see what we have on tap.

At 6:00 am GMT we have Nationwide’s HPI to give us a gauge of how UK’s housing market is doing. Analysts are eying an improvement in the general level of house prices with the forecast for August up at -0.3% from July’s -0.5% reading. We also have the construction PMI at 8:30 am GMT with the consensus slightly lower at 53.2 for August from its 54.1 reading in July. If the figures come in better than expected, we may just see the pound wake up tomorrow feeling as awesome as I am, again!

[PipDiddy]

The markets dropped a lot of pounds yesterday, and no, it has nothing to do with weight issues. The pound bulls lost their appetite when UK printed, not one, but two disappointing pieces of data. The pound found itself down by 55 pips against the dollar at 1.5398 and 73 pips at 129.70 to the yen. EURGBP also soared to its .8327 closing price. Cripes!

The Nationwide house price index might have soured the investor-lovin’ when a simple supply and demand action brought the house prices down by 0.9% in August after dropping by 0.5% last July. The construction PMI, too, failed to put on a good show when the index fell to 52.1 from July’s 54.1 figure.

Maybe the pound can get some of the cheery faces back when UK releases the Halifax house price index today at 8:00 am GMT. Did the Nationwide data set the tone for last month’s housing industry, or will this report beat the odds by printing higher than July’s 0.6% rise?

The PMI for the services industry is also scheduled to hit the spotlight today at 8:30 am GMT. The market groupies pegged the figure at 53.0, but a better-than-expected figure might help the pound get back in good shape.

[PipDiddy]

“I choose you!” The pound bulls went all Pipkémon last Friday and successfully battled it out against the currency bears despite the disappointing services PMI from the UK. The pound lost 12 pips against the euro, but gained 84 pips against the yen at 130.54. GBPUSD also showed muscle after capping the day with a 65-pip win at 1.5463.

Does this mean that the currency bulls are in the “gotta catch ‘em all” mood for the pound? Many analysts don’t think so. Last Friday’s 51.3 figure for the services PMI was the third hit to the UK economy after it followed the less-than-stellar numbers for the manufacturing and construction PMIs. With the services industry making up 70% of UK’s business activities, the buzz of a double-dip recession in the UK is getting louder. Duhn duhn duhn duhn.

Will the economic data this week confirm the market’s fears? The BRC retail sales report will start the week for the UK, and a better-than-expected figure than last July’s 0.5% growth would support the strong retail sales figures released last month.

The Halifax house price index can also rock the charts on Tuesday if it prints worse than the expected 0.3% dip from last July’s 0.6% rise. Meanwhile, the manufacturing production on Wednesday at 8:30 am GMT is expected to remain growing by 0.3% in July.

The climax of the show will be on Thursday when the trade balance report at 8:30 am GMT will be followed by the Bank of England’s interest rate announcement at 11:00 am GMT. Since many believe that the BOE will maintain its current 0.50% interest rate this month, analysts are more excited about the trade balance. The deficit is expected to widen to 7.5 billion GBP in July from its 7.4 billion GBP figure last June.

It’s time to fatten up those pip-ggy banks, so don’t even think of missing these red flags! Happy trading!

[PipDiddy]

Boy did the pound get some poundin’ from the bears yesterday! GBPUSD hustled to its intraday high of 1.5490 only to tumble to 1.5347 before closing the day at 1.5399. Ouch! Against the euro the pound slumped to its six-week low at 0.8391 before settled it at 0.8365 to start the week with a 12-pip loss.

Word on the street is that the weak PMI figures released last week still weighed down on the currency. Some also say that the sell-off was because a big British bank sold its pounds.

Good thing the BRC Retail Sales Monitor somehow provided the pound with a breather when it showed that consumer spending in August was at 1.0% which was double that of July’s 0.5% reading.

I wonder if the pound bulls will be able to stage another rally with today’s reports. Let’s take a look at them, shall we? At 11:00 pm GMT we have the BRC Shop Price Index. If we see the figure for August higher than that of July’s reading which was at an annualized rate of 1.5%, we may just witness the pound hustle once again as this would indicate stronger inflation pressure. Along with that we have the permanent jobs report which came in at 60.2 in July. A better than expected figure will also be bullish for the currency so watch out for that!

[PipDiddy]

Look out below! The pound slipped against most of its major counterparts yesterday on a fresh wave of risk aversion as a Wall Street Journal article questioned the credibility of the European banks and the EU stress tests.

GBPUSD leveled off to a 1.5367 closing price after dropping to an intraday low of 1.5297, but EURGBP ended the day at the pip-deeps at 0.8260.

Tsk tsk. It seems that the markets barely paid attention to the better-than-expected BRC shop price index that clocked in at 1.7% against last July’s 1.5% growth. This could’ve been a booster for the pound since it signaled healthy consumer spending despite the threats of tax increases and unemployment.

Will today’s data be of any help for the pound? The manufacturing production report due 8:30 am GMT is expected to ease to a 0.3% growth after rising by 0.6% last June, but something tells me that the data is in for an unpleasant surprise. I’ll give you a clue – it starts with “manufacturing” and ends with “PMI.”

The National Institute of Economic and Social Research (NIESR) is also set to rock the charts sometime today when it releases its GDP estimate for the second quarter. A better-than-expected reading than last quarter’s 0.9% might wake up the bulls and push the pound higher in the charts.

[PipDiddy]

“I’ve been high, I’ve been low… I’ve been yes and I’ve been oh, hell no” The pound did a Train number yesterday when it rose against its major counterparts after getting beat up for the past few days. GBPUSD capped the day with a 98-pip rise at 1.5465, while EURGBP closed 38 pips below its open price at .8222.

The better-than-expected Halifax house price index might have pulled the pound bulls out of their siesta when it clocked in a 0.2% rise. This sent a shockwave of good vibes to the market geeks who predicted a 0.3% fall in prices after a gloomy reading from last week’s Nationwide house data.

The production data for the month of July also kept the bull rally chugging after the manufacturing production report printed an in-line-with-expectations 0.3% figure, while the month’s industrial production went up by 0.3% after dropping by 0.5% in June.

Lastly, the National Institute of Economic and Social Research (NIESR) estimated that the UK economy grew by 0.7% for the past three months ending in August. This might be a bit cooler than last quarter’s 1.5% estimate, but NIESR also said that the number is good enough for the economy.

Will the data today keep the happy tune for the pound? The trade balance report is scheduled to rock the charts at 8:30 am GMT. The trade deficit for July is expected to widen by 0.1 billion GBP to 7.5 billion GBP, but a worse-than-expected data might signal that the growth weakness around the globe is taking its toll on the UK’s trades.

UK’s Monetary Policy Committee (MPC) is also set to announce its interest rate decision at 11:00 am GMT. Because analysts believe that the MPC will keep rates at 0.50% until 2011 and the inflation target at 2%, the report is expected to trigger be a near snoozefest.

Be on your tippy-toes for these reports!

[PipDiddy]

The pound buckled some early intraday hits in yesterdays trading, limiting its potential losses. GBPUSD traded as low as 1.5376, while GBPJPY threatened to test lows at 128.57, but both pairs bounced right back up, managing to close at 1.5437 and 129.39 respectively.

As expected, there was no change from the BOE’s stance on quantitative easing, as they kept rates steady and the asset purchase facility at 200 billion GBP. As it turns out, it turned out to be a non-event, as GBPUSD barely yawned once the news came out.

Instead, the major news to hit the market was the results of the recent trade balance figures. The UK posted a deficit of 8.7 billion GBP, which was much higher than the anticipated 7.5 billion GBP figure. The report showed that while imports have risen slightly, export demand is weakening.

With the UK about to implement austerity measures, some fear that the recent rise of imports cannot continue. This poses a problem for the UK economy, as then both internal and external demand would be weak. I guess the BOE may have no choice but to take a wait-and-see approach eh?

For today, we’ve got the producer price index on deck at 8:30 am GMT. Producers are expected to have paid 0.2% more for their raw materials in the past month. Remember, producers normally pass on any additional costs to consumer to bear the burden. So if producer prices are rising, it would be a sign of rising inflation, which may prompt the BOE to raise interest rates. Now, I’m not too sure that Mervyn King and his buddies are eager to raise rates just yet, but I’m just putting the idea out there...

[PipDiddy]

Right in line with the recent end of summer trend, GBPUSD stayed within a descending channel, as it fell once it touched upon key resistance. After touching a high of 1.5467 last Friday, the pair dropped 109 pips to find itself right smack in the middle of the channel at 1.5358.

Initially, GBPUSD pushed higher to start the day, but found itself struggling once producer prices data was released. The report showed that producer prices (the prices at which they pay for raw materials) fell by 0.5% last August. This was extra disappointing, as early forecasts were calling for a 2.0% rise in prices. This gives less reason for the Bank of England to raise rates in the meantime. Remember, just before the start of summer, rumors were floating around the English channel that the UK might have to deal with a case of hyperinflation.

Speaking of inflation...

The consumer price index, which will be released tomorrow at 8:30 am GMT, could give us a clearer picture of what direction UK prices are headed. Experts anticipate that year-on-year inflation has died down to 2.9%, which would inflation right under BOE’s upper target limit of 3.0%.

Could this be the news that busts GBPUSD out of its recent range? If not, well, for all those who want some volatility, I’ve got some good news for you! We’ve got tons of data coming out during the rest of the week!

To kick off the week, we've got some medium tier data in the form of the Nationwide consumer confidence index and the RICS housing surveys due at 11:00 pm GMT today. While the consumer confidence index is expected to tick up to 59, up from 56 the prior month, the RICS surveys are expected to reveal that housing prices fell in the past month.

On Wednesday, both employment data (claimant count) and the BOE’s inflation report hearings are due, while on Thursday we’ve got retail sales. I’ll make sure to give you the scoop on these events and how they can affect the fate of the pound! Good luck this week!