Daily Economic Commentary: United Kingdom

[PipDiddy]

With no major news being released, there was no catalyst to bust GBP/USD out of the 100 pip range it traded in yesterday. After seesawing up and down the charts throughout the day, at the end of the day, Cable ended up right where it started at 1.5510.

Preliminary mortgage approvals data came in slightly weaker than anticipated, posting a figure of 45,000 after it was expected to come in at 47,000. This is probably what kept the pound from regaining any of its losses from last Friday.

Earlier today, the GFK consumer confidence report was also released, and as predicted, the figure wasn’t that rosy. The report printed a score of -21, which indicates that British consumers have the same level of pessimism that they did in the previous month.

I have to wonder, will the recent snowstorms hitting the U.K. continue to affect consumer sentiment? Apparently, these are some of the worst snowstorms in almost 2 years and the last time we saw weather like this, consumer spending took a hit. We’ll have to wait and see in the coming months whether it did indeed affect Christmas shopaholics.

For today, we’ve got one red flag going up the economic pole in the form of public sector borrowing figures. The report, which basically measures how much the government spent (or saved) in the previous month. Consensus is that the government will post a deficit of 17 billion GBP for the month of November. Will a worse than expected figure send the pound tumbling down the charts?

[PipDiddy]

Thanks to some poor public finance figures, the pound found itself with the short end of the stick yesterday. GBP/USD closed 48 pips lower for the day to finish at 1.5462.

Apparently, the government has been spending too much on Beatles songs from iTunes, as public spending posted larger than anticipated deficit for the month of November. The public sector net borrowing report showed a figure of 23.3 billion GBP, much larger than the 17 billion GBP that was expected.

Okay, fine, they actually spent the money on health care and paying off some debt, but it is interesting to see that government spending went up, considering that it has supposedly taken up austerity measures. Perhaps it just felt like spending a little bit more before the start of the new year?

For today, we’ve got a few more red flags, as current account data, final quarterly GDP figures, and the latest MPC minutes are all due at 9:30 am GMT.

The current account is expected to show a deficit of 8.5 billion GBP during the third quarter. But don’t expect this report to make big waves in the market, as this data has been previously released via the trade balance report earlier this month.

Instead, keep your eyes peeled for the final GDP and MPC minutes reports. Many expect that there will be no change from previous reports that showed 0.8% growth during the third quarter. If today’s report were to suddenly show a different figure, it could serve as a catalyst to push pound trading in either direction.

As for the MPC minutes, it’ll be interesting to see whether there were more cat calls for any additional stimulus. If there were indeed more discussions for adding more quantitative easing to the economy, we may just see the pound sink across the board.

[PipDiddy]

Blimey, look at the pound fall! The Sterling continued to lose ground against its major counterparts yesterday when risk aversion maintained its hold in markets, and the U.K. posted less-than-awesome economic reports. GBP/USD fell for the fourth day in a row to its 1.5382 closing price. Meanwhile, GBP/JPY joined the 4-day sell-the-pound marathon by dropping 95 pips to 128.52.

The U.K.’s current account deficit gave the pound bulls a thrill when it surprisingly clocked in at 9.6 billion GBP from the second quarter’s 5.2 billion GBP deficit. Apparently, the increase in exports was offset by the bad figures from foreign investments. Tsk tsk.

The minutes from the Monetary Policy Committee meeting also failed to reassure the markets when it showed that the MPC members continued to play rock-paper-scissors on the U.K.’s economy. MPC member Andrew Sentance still hollered for a rate hike, Adam Posen pushed for more quantitative easing, while the rest of the members took a chill pill and voted for a sit-and-watch strategy.

The U.K.’s final GDP figures for the third quarter was last to come out yesterday, and even that failed to put a smile on the pound bulls’ faces. The data slipped to a 0.7% growth from its 0.8% preliminary figure. Given that the U.K. economy is expecting a ginormous tax increase and a series of steep budget cuts next year, a weak GDP ain’t exactly what the U.K. wanted for Christmas.

Maybe the BBA mortgage approvals report can give the pound a breather from its losses as it is expected to show 31,300 approvals in November, up from October’s 30,800 figure. Be sure to catch it at 9:30 am GMT!

[PipDiddy]

Boom baaaaby! Just like fireworks, the pound lit up the charts as it welcomed the New Year by exploding upwards. It was one of the biggest gainers last Friday as a positive HPI helped boost GBP/USD from 1.5422 to 1.5595.

The Nationwide house prices index gave the pound just what it needed to end the year on a high note. After printing back-to-back declines in house prices, most recently a 0.3% drop in November, the report finally let out a positive figure. House prices rose 0.4% in December, surpassing forecasts for a 0.2% tick down.

I would hold off on any further celebrations though. If you take into consideration the timing of the pound rally last Friday, and the general weakness the currency had been showing in the weeks leading to the end of the year, it could be argued that the pound’s last-minute rise was actually due to investors covering their pound short positions. This, of course, could mean that more losses await the pound in 2011.

In any case, today is a banking holiday in the U.K., so you’ll have to take a chill pill for now and wait until tomorrow to get your first taste of 2011 economic data.

Due tomorrow, the Halifax HPI is expected to print a 0.3% decline following November’s 0.1% fall. Will this report follow in the footsteps of last week’s Nationwide HPI? You’ll just have to see for yourself at 8:00 am GMT tomorrow morning!

Also, the manufacturing PMI is scheduled for release tomorrow. The index is slated to fall from 58.0 to 57.5 in December. Catch it at 9:30 am GMT.

The last tier 1 report for the week is due on Thursday. The services PMI, which measures the economic health of the services sector, is forecasted to slightly drop its reading from 53.0 to 52.9.

As usual, be on the lookout for better-than-expected results that may ignite another pound rally!

[PipDiddy]

Was December 31’s rally a mere fluke? Not even the lack of data could save the pound from sliding yesterday. Worries over the outlook for the U.K. in 2011 kept the pound grounded as GBP/USD fell 90 pips to close at 1.5476.

The pound didn’t have the best start to the year. But given the bleak outlook for the U.K.’s economy, what did you expect?

Inflation is anticipated to climb to 4.0% this year, double the target of the BOE. I’m sure the VAT increase, which is supposed to be implemented this month, has something to do with the forecasted rise. And let’s not forget the austerity measures that await the U.K. in 2011! It certainly looks like the central bank will have quite the battle on its hands if it wants to tackle inflation without slowing the economy further.

Let’s see if today’s data can lift pound bulls’ spirits a bit.

The main report to watch for is the manufacturing PMI, which is slated to show a drop from 58.0 to 57.3 in the month of December. Even though the index will likely print a decline, if the reading manages to stay above 50.0, it will still be indicative of growth in the manufacturing sector. Still, you’d best be on the lookout for worse-than-expected figures that may weigh down on the pound when the report comes out at 9:30 am GMT.

Net lending to individuals data may also be worth a second look today. According to forecasts, new credit issued to consumers is expected to reveal a 0.9 billion GBP net increase in November, a decline from the previous month’s 1.3 billion GBP net increase. It’ll be interesting to see the results of this report since it usually gives us an idea of the level of confidence of consumers.

That’s all for today, pip-folk. Now go out there and grab some pips!

[PipDiddy]

Let’s give a round of applause to the old chap! After losing ground against its major counterparts at the beginning of the week, the pound bounced back up the charts on better-than-expected economic reports in the U.K. GBP/USD rocketed by 111 pips to 1.5584, while EUR/GBP dropped by 96 pips to .8533. Boo yeah!

It seemed that the pound bulls got all excited when the U.K.’s manufacturing PMI rose significantly from 57.5 in November to a 16-year high of 58.3 in December. We’re talking about levels not seen since Tom Hanks was struttin’ his stuff in the box office with Forrest Gump! The mortgage approvals data also gave the pound bulls traction when it increased by 3,000 from October to November.

In fact, the high from the better-than-expected economic data got so contagious that markets were able to shrug off the drop in the net lending data from 1.5 billion GBP in October to 700 million GBP in November.

Only the construction PMI report is due for release today, but keep your eyes on the Sterling pairs! Analysts expect the data to slip a bit from November’s 51.8 figure, but an upside surprise can extend the bulls’ party.

[PipDiddy]

The daily chart of GBP/USD is starting to look like Pipcrawler’s favorite Christmas-themed striped shirt the way the pound has been alternating big wins and big losses! Yesterday, thanks to a disappointing construction PMI report, the bears’ were able to take over, pushing Cable down 75 pips to 1.5511.

Far worse than the expected reading of 51.0, the construction PMI report gave the U.K. its first below-50 reading in 10 months! The index fell from 51.8 to 49.1 in December, indicating that the construction industry contracted.

Some say the recent bad weather is to blame for the slump in construction activity. Even employment and confidence seems to have been bogged down. But on the bright side, new order growth picked up, which could be a signal of better times ahead.

The highlight of the day for the U.K. is the release of its December services PMI. The index is estimated to drop slightly from 53.0 to 52.8, but a worse-than-expected figure may give pound bears their first back-to-back victory in over a week.

We saw how strongly the markets reacted to the manufacturing PMI released earlier this week. The services PMI might be just as explosive! Tune in at 9:30 am GMT to get a piece of the action!

[PipDiddy]

Finally, a bit of consistency! After over a week of being in a virtual stalemate with pound bulls, bears were finally able to string together back-to-back results. With a disappointing services PMI backing their cause, they were able to drag GBP/USD down from its intraday high of 1.5564 to 1.5475 at the end of the day.

The pound was actually staging quite the rally up until the services PMI report burst its bubble. Analysts had estimated a slight decline from the previous reading of 53.0 to 49.7. Markets were certainly surprised to see the index print such a steep drop to 49.7.

This caused a bit of alarm to investors because this figure is indicative of contraction in the industry. Fingers are pointed at the bad weather conditions as the culprit of the slump in the services sector. And the U.K.’s high inflation has been punishing companies with high input costs as well. Hmm… It looks to me like the U.K. will have to depend on the manufacturing industry for growth because the services sector certainly seems like it’s incapable of stepping up.

With that report, the economic data inflow comes to an end. Not the best way to end the week, but the pound may still have a chance to regain some of its losses as the U.S. is scheduled to publish its ground-shaking NFP report today at 1:30 pm GMT. Don’t miss it!

[PipDiddy]

The pound finished of the first week of 2011 on a steady note, as it posted a 70 pip gain versus the dollar on Friday. Still, the pair has largely remained with a tight range. Will it continue to do the same this week, or is a breakout imminent?

Why do I think there could be a break out in the making? Well, we’ve got the Bank of England’s MPC statement coming up this week!

This week’s statement could be a rim rocker, as some specialists now believe that due to rising inflation, the BOE will have no choice but to eventually raise rates sometime this year. So far, Mervyn King and his boys have repeatedly said that they do not believe that inflationary pressures will remain. They’ve pointed to austerity measures that have yet to be kicked in high gear as something that could drag down prices in 2011.

Watch out for the statement on Thursday at 12:00 pm.

For today, watch out for the monthly Halifax housing price index report, which is due at 8:00 am GMT. Take note that last month’s release showed a decrease in home prices of 0.3%. If Halifax announces another decrease in prices this month, we could see the pound tumble across the board.

[PipDiddy]

Back to back baby! For the second consecutive trading day, the pound finished ahead of the dollar. GBP/USD rose 55 pips to finish at 1.5579. Still, the pound hasn’t been as hot as the Heatles (ask Mr. Lebron James about that), as it failed to close above the 1.5600 handle.

The steadiness of the pound could have been confusing to some market participants, as the only piece of U.K. data release, the Halifax housing price index, wasn’t exactly encouraging. The report printed a decline in housing prices of 1.3%, much worse than the anticipated 0.3% figure. This indicates that the British housing market remains as weak as a woman’s knees once Prince William enters the room.

So how did the pound keep pace? Well, apparently there were some deals between China and the U.K. worth about 4 billion USD. This hinted at strong trade relations between the two nations, which apparently, the markets received quite well.

Moving on, we got some news earlier today, as the BRC retail sales report was released. Sadly, for the first time in 8 months, the report showed a negative figure, as retail sales fell by 0.3% last December. This was somewhat surprising, considering that it was the holiday season. Did people do their Christmas shopping earlier, or did people hold back on spending during the holidays? This is a trend we’ll have to keep an eye on in the coming months.

No other data due for today, so you’ll have some time to enjoy your tea. Let me remind you though, to always be ready since you never know what might hit the market! Good luck today!