Daily Economic Commentary: United Kingdom

[PipDiddy]

With no expectations from the BOE rate decision, Cable stayed steady in yesterday’s trading. GBP/USD traded well within its daily average true range and closed just 13 pips lower for the day at 1.6320.

As expected, our buddies over at the Bank of England did not make any changes to their asset purchase facility nor did they hike interest rates. This made the BOE rate decision a snoozer, as everyone decided to watch what their European counterpart, the ECB, would do instead.

It seems that BOE officials are still divided as to what direction to take with monetary policy. On one hand, inflation is waxing hot like Blake Lively (have you seen the trailer for Green Lantern!?). On the other hand, it isn’t like the British economy is chugging along like a well-oiled machine. I’m looking forward to minutes of the meeting to see just how divided the BOE could be on this issue.

Speaking of inflation, producer price input figures are due today at 8:30 am GMT. Expectations are that producers are paid 2.2% more for their raw materials. Remember, this report is a good indicator of inflation, as producers are highly likely to pass on any additional costs to consumers to bear the burden. If today’s report comes in to print a higher figure, we could see the pound get a nice boost across the board, as this would raise speculation that the BOE will follow the ECB’s lead in raising interest rates.

[PipDiddy]

Despite the strong resistance at the 1.6400 handle, GBP/USD refused to back down last Friday as it ended 48 pips above its day open price of 1.6315. Meanwhile, GBP/JPY stopped in its tracks at 140.00 before closing at 138.84.

The pound was able to score another day of wins against its major counterparts after the U.K. printed better than expected producer price reports. The PPI input showed that the prices of goods and raw materials purchased by manufacturers jumped by 3.7% last month while the PPI output figure printed a 0.7% increase. On top of that, the PPI input reading for February was revised upwards to show a 1.4% rise.

As we all know, if producer prices keep climbing, manufacturers will eventually have to sell their products at higher prices. This means that the costs will be passed on to consumers and this will lead to higher consumer inflation. The ECB responded to stronger inflationary pressures by hiking interest rates last week. Is the BOE feeling the pressure to do the same? If central bank officials start hinting at a possible rate hike, the pound could do a Far East Movement number and Rocketeer across the charts!

Of course this still depends on the upcoming economic data. For this week, the U.K. CPI report is one of the red flags on deck and this is due tomorrow 9:30 am GMT. Along with that, the retail price index is also set for release. Keep in mind that stronger than expected results could allow GBP/USD to break above 1.6400 and GBP/JPY to soar past 140.00.

On Wednesday, the spotlight will shift away from inflation data to labor reports. The claimant count change is due 9:30 am GMT that day and it could print a 3,100 decrease in joblessness for March. This could keep their unemployment rate steady at 8.0%.

That's all, folks! Don't forget to keep an eye out for any shifts in market sentiment because this could rock the pound this week too!

[PipDiddy]

Sell, sell, sell! Pound traders were all about selling yesterday as they had little reason to hold on to the currency with only light economic data on tap. As a result, Cable ended the day 30 pips lower at 1.6348 after a failed attempt to close above the 1.6400 handle.

Yesterday’s selloff was an interesting market move, seeing as it happened ahead of the release of the U.K.’s CPI report later at 8:30 am GMT. Yesterday’s price action was in contrast to the pound’s behavior in the past, which saw pound gains prior to the release of the report. Could this pound weakness be a reflection of the market’s expectations?

Forecasts have CPI clocking in at 4.4%, the same rate as that of February. However, given the pound’s recent strength, there’s a chance the actual results may come in below expectations. Weak consumer demand, as evidenced by the 3.5% drop in the March BRC retail sales monitor (versus the February’s 0.4% decline), is also expected to weigh down on inflation.

If that’s the case, and CPI does print below forecast, expect traders to sell the pound like it was going out of style! But on the other hand, if CPI picks up, it may just breathe life into the pound and send it back up the charts.

[PipDiddy]

I said a bang, bang, bangity-bang, a bang, bang, bangity-bang! Thanks to weaker than expected economic data and general risk aversion, the pound got blown out of the water yesterday. GBP/USD dropped nearly 100 pips to finish at 1.6264, while GBP/JPY slid 220 pips all the way down to 136.13!

The main culprit in yesterday’s shootout was the consumer price index. The index was way off the predicted 4.4% figure, as it printed year-on-year inflation to be at 4.0%. This indicates that inflationary pressures may be dying down, which could give the BOE reason NOT to hike rates any time soon. As a result, we saw the pound take some bullets to the chest as it fell right after the release of the report.

Remember, one of the main themes in the market right now is interest rates, so it’s no surprise that this report caused quite a ruckus in the markets.

In other news, the U.K printed a smaller trade deficit, printing at 6.8 billion GBP for the month of February. This was much better than the expected 8.1billion GBP, and a nice improvement from the previous month’s deficit of 7.8 billion GBP.

The important thing to note here is that the narrowing of the deficit was due to the rise in exports to non-EU countries, which rose 7.6%. With many EU countries struggling right now, developing trade relationships with non-EU countries will be crucial over the next few months.

Will the pound bounce back today? Or will it head even lower down the charts? Tune in at 8:30 am GMT, when the weekly claimant count change report will be released. Word is that 3,000 less people filed for jobless claims last month, which would be a nice follow up to last month’s figure of 10,000. Be careful though, because if this report comes in worse than expected, we might just see another round of pound selling! Good luck!

[PipDiddy]

The pound was as chill as a snow cone in winter! It simply shrugged off yesterday’s not-so-upbeat employment data and refused to give in to bearish pressure. GBP/USD finished the day 14 pips higher at 1.6267 while GBP/JPY ended 25 pips higher at 136.32.

The release of last month’s employment figures didn’t really do much to shake up the markets as the pound stayed in consolidation for most of the day. Hmm… I suspect the mixed feedback from the labor market had something to do with this.

On one hand, the claimant count change was worse than expected, printing an increase of 700 instead of a decline of 3,600 in the number of people claiming unemployment benefits. But on the other hand, the unemployment rate dropped from 8.0% to 7.8%. What gives?!

One possible explanation as to why claims for unemployment benefits rose was because of a change in the requirements for eligibility of single-parent benefits. With more people qualified to claim benefits, it's only natural to see the number of claims rise.

Also interesting was how the average earnings index showed just a 2.0% rise in earnings, in contrast to the 2.6% rise that was forecasted. This is particularly noteworthy because it means that despite the insanely high inflation in the U.K., workers haven’t been clamoring for higher wages. So basically, it suggests the maybe inflation has been manageable after all! This, in turn, may help ease pressure off the BOE to raise rates down the line.

The economic calendar will be blank for the U.K. today. But y’all should keep your eyes and ears open for the G7 meeting scheduled to take place today. Whatever these big dogs discuss may have huge impacts on the markets so it’s best to stay in the loop!

[PipDiddy]

Boom, baby! After GBP/USD’s choppy movement on Wednesday, the pair suddenly burst with life yesterday. It closed the session at 1.6347, almost 100 pips higher from its opening price.

There were two main reasons behind the pound’s climb. First, the Nationwide consumer confidence came out with a very positive result. It printed a reading of 44, significantly higher than the 40 the market initially expected. The pound also benefited from the market’s skepticism that the U.S. could handle its huge budget deficit given the extreme differences in opinions in the government.

No data coming out today from U.K., but do keep a close eye on Chinese data coming out at 2:00 am GMT. If the Chinese gross domestic product (expected to show a 9.5% growth) and the consumer price index (predicted to print a 5.2% rise) come out better than forecast, we could see risk appetite pop up again and help the pound rise!

[PipDiddy]

Just like Cee Lo Green who threw a fit at Coachella, pound bulls also didn’t seem in the mood to hustle in Friday’s trading. GBP/USD traded lower and ended the day 51 pips lower at 1.6296. Meanwhile, GBP/JPY closed the week at 135.41, 100 pips lower from where it opened on Friday.

Perhaps the lack of economic data upset the bulls. If that is the reason, this week is sure going to be interesting with a handful of high-caliber reports on tap.

We started off the week with Rightmove’s HPI report for April which was released earlier today. It showed that house prices increased by 1.7% and more than doubled the 0.8% uptick we saw for March.

Next on our lineup is the minutes of the most recent MPC meeting on Wednesday at 8:30 am GMT. It is expected that three members voted for a rate hike increase. If you’re planning to root for the pound, you may want to keep your fingers crossed that resident hawk Andrew Sentance was able to convince more of his chaps to ask for an interest rate increase in order to tame inflation.

Then on Thursday, we’ll get dibs on consumer spending with the retail sales report on tap at 8:30 am GMT. It has been predicted to show a softer decline of 0.5% for March after falling by 0.8% in February. To be released along that will be the data on public net sector borrowing. Take note that the forecast is for a budget surplus of 19.0 billion GBP for March.

Other than economic reports, make sure you also get a feel of market sentiment. Keep in mind that the pound usually rallies in times of risk appetite.

[PipDiddy]

Bow chicka wow wow! Unlike my boy Mike Posner’s hit single, the pound wasn’t a winner on the charts yesterday! After hitting an intraday low at 1.6167, GBP/USD managed to close at 1.6264, marking a 44 pip loss.

With the slight wave of risk aversion hitting the markets, the pound was just one of the victims to get swept away. Still, its losses weren’t as severe as other currencies like the euro. This could be attributed to the decent results of the Rightmove HPI report, which printed a 1.7% increase in the asking prices of homes, up from the 0.8% figure released last month. The increase is indicative of a healthier housing market, which may have given the pound some support.

Looking at the awesome BabyPips.com economic calendar, we’ve got nothing on tap today. Still, that doesn’t mean you can chill out n listen to your Beatles tunes all day. Watch out for any more news regarding the euro zone and sovereign debt problems. If these concerns escalate, it could spark a whole new round of risk aversion which may just send the pound tumbling down the charts!

[PipDiddy]

Despite the lack of economic data, the Sterling sparkled like Big Pippin’s bling-bling as it rallied past the 1.6300 handle against the dollar in yesterday’s trading. Ooh la la! With the BOE minutes on tap today, will it finally break resistance at 1.6400?

If you recall, BOE Governor Mervyn King didn’t announce a rate hike in the bank’s most recent interest rate decision. Almost everyone had expected it so it wasn’t really a market-moving event for the pound. Now analysts are looking to sink their teeth into the details of the decision to get hints on which direction the U.K.'s monetary policy is headed.

In March, we saw that three members of the MPC voted to start tightening but there were nine who opposed a rate hike. On one side, the more hawkish members point to strong inflationary pressures as the reason for their vote. Meanwhile, the dovish ones think that demand is still too fragile to sustain an increase in borrowing costs.

Economic gurus think that if no one shifted camps or if one of the hawks turned into a dove, the pound will probably get sold off. Meanwhile, if someone from the dovish crew voted to hike rates, we may just see Cable go beyond 1.6400! So make sure you don’t miss the release later at 8:30 am GMT!

[PipDiddy]

No grounding by the MPC was gonna stop the pound from joining the risk appetite party! Despite dovish comments from the MPC, cable was able to come out ahead, imposing its might on the dollar and yen. GBP/USD closed at 1.6402 after opening at 1.6311, while GBP/JPY finished at 135.11, good for a 51 pip gain.

Once again, our buddies over at the MPC did not show much concern about inflation, as they (the majority of them at least) stuck to the wait-and-see stance. According to the minutes, the MPC believes that there is still some weakness in the economy and that it would be best to stick with its currency monetary policy in the mean time.

The pound dropped following the release of the minutes… but risk appetite soon propped it back up! With GBP/USD now sitting at key resistance around the 1.6400 handle, what will it take for the pair to break through the key resistance?

Well, if you’re waiting for a catalyst, then you’re in luck, as we’ve got some high impact reports on deck today! At 8:30 am, both the monthly retail sales and public sector net borrowing reports are due.

Retail sales are projected to come in at -0.5%, a smaller decrease than the previous month’s -0.8% decline. Meanwhile, net borrowings are seen to have increased by another 20 billion GBP, up from 11 billion in March.

I’d pay a lot more attention to the retail sales report, as it is indicative of consumer spending in the U.K. If today’s report comes in way worse than projected, we may see GBP/USD fail to break above key resistance and fall all the way back to this week’s lows!