Daily Economic Commentary: United Kingdom

[PipDiddy]

Although the pound got away with only a 17-pip win from the dollar on Friday, don’t think that trading was easy-breezy for the pound bulls! After getting rejected at 1.6250, GBP/USD tumbled to its intraday low at 1.6167. Good thing the pair found enough support and it bounced back to peak at 1.6304 before ending the day at 1.6249.

On the other hand, EUR/GBP dropped like a rock to .8712 from an intraday high of .8839 as investors worried about Greece’s fiscal situation.

Our forex calendar shows that we don’t have a lot of high-caliber economic reports to sink our teeth into this week. Only public net sector borrowing (Tuesday at 8:30 am GMT), revised GDP (Wednesday at 8:30 am GMT), and Nationwide HPI (Friday at 6:00 am GMT) reports are due this week.

So you may want to make sure you get a good feel of the market’s mood before you enter your trades. Remember that the pound usually doesn’t do well against lower-yielding currencies in times of risk aversion.

If you’re planning to buy the pound, you may want to keep your fingers crossed for the public net sector borrowing report to print a surplus bigger than the 4.8 billion GBP forecast tomorrow. Good luck!

[PipDiddy]

What a bummer! Cable started the week on a very weak note as the Greek debt debacle continued to dominate the headlines yesterday. Cable, after it had opened the day at 1.6229, fell more than 100 pips to end the U.S. trading session at 1.6114.

It appears that the market is becoming more and more skittish about the whole situation. The problem with U.K. is that its banks are heavily exposed to Greek debt, so if Greek defaults, the banking sector will also take a big hit. And with the underlying confidence in the U.K. economy still frail, there’s very little reason for investors to put their money in the pound.

The forex calendar shows two important reports from U.K. today.

The first one, the report on public sector borrowing, will be released at 8:30 am GMT. The market expects the report to show that the U.K. government had a 6.5 billion GBP deficit in April, lower than the 16.4 billion GBP deficit seen in March. Higher-than-expected figures are usually considered bearish for the pound, as it meant that the government spent more than it earned.

Following shortly at 10:00 am GMT is the CBI quarterly distributive trades survey. The forecast is a reading of 11, down 10 points from April.

For the time being, it seems that the market is pretty bearish on the pound. This could mean that the pound could sell-off again if the upcoming reports come in worse than expected.

[PipDiddy]

The pound threw its weight around (Hah!) when it posted gains against its counterparts despite a worse-than-expected report from the U.K. Cable ended up with a 79-pip gain at 1.6191, while GBP/JPY also rose by 51 pips to 132.64. Boo yeah!

Data printed yesterday showed that tax revenue in the U.K. fell by 0.8% in April, while the government’s spending increased to 10 billion GBP, which was a lot higher than the expected 6.5 billion GBP. The high government spending pushed public sector borrowing to 7.7 billion GBP in April, higher than the estimates of only a 5.0 billion GBP deficit.

Good thing that markets were focused on the good news! Aside from a bit of risk appetite in markets, the U.K. also released its realized sales in May, which clocked in at an index reading of 18 when market geeks thought that the post-Royal Wedding spending would drag the data to a reading of 11.

Today all eyes will be on the final figure of the U.K.’s first quarter GDP, which will be released at 8:30 am GMT. Although no change is expected from the data, my forex buddies will be keeping close tabs for any surprises.

Also released at 8:30 am GMT is the BBA mortgage approvals report, which is expected to increase to 32,200 in April from March’s 31,700 figure.

Stay sharp on your trades, kids!

[PipDiddy]

Well, well, guess who turned out to be one of the biggest winners in the forex market yesterday? The pound! Despite softer economic data, the pound still managed to stage a magnificent rally across the board in yesterday's trading session, gaining 90 pips over the dollar and 83 pips versus the yen.

The BBA Mortgage approvals report came in at 29,400, much weaker than the 32,200 the market predicted. Meanwhile, the Preliminary business investment report for the first quarter showed a 7.1% decline instead of rising 2.4% as expected. The revised GDP report was the only bright spot in the economy, confirming that the economy did indeed expand by a solid 0.5%.

If data weren’t very optimistic, what caused the pound to rally then?

Apparently, the pound’s rise was mainly due to an OECD report. The report said that the Bank of England (BOE) needs higher interest. With inflation in the U.K. significantly above the BOE’s target, this was something pound bulls wanted to hear.

The pound’s rally was mainly the result of firm Q1 exports and an OECD report saying the BOE needs higher interest rates.

Nothing on U.K.’s forex calendar today, but we will be seeing the U.S. GDP report at 12:30 pm GMT. Expect a lot of movement on the pound today, as the GDP report will probably have a hefty impact on the pound’s price action.

[PipDiddy]

The party don’t stop yo! With no economic data to rain on their parade, pound bulls continued to whoop it up on the charts. They pushed GBP/USD up another 112 pips, forming a three white soldiers pattern on the pair’s daily chart.

Pound bulls may not have had any U.K. data to work with, but they went absolutely gaga for the disappointing GDP figure that the U.S. posted! After the results came out, traders quickly abandoned the dollar and jumped aboard the pound bandwagon.

But to tell you the truth, the way the markets have been treating the pound has been interesting to say the least. You’d think that the euro zone’s debt problems would spill over to the U.K. and weaken the pound since U.K. banks are heavily exposed to euro zone debt. But apparently, the markets are treating all of this as a euro zone-centric problem for the meantime.

Today, the pound has been off to a slow start. Even with GfK consumer confidence data coming in above expectations (-21 vs. -31), we haven’t seen much action.

Could this be because the markets are waiting for a bigger report? It could be! After all, the Nationwide HPI is due at 6:00 am GMT. This report has the potential to cause a stir on the charts, so you might want to give it a look. Forecasts have it printing a 0.1% rise after April showed a 0.2% decline.

[PipDiddy]

My my, look at the pound fly! GBP/USD reached a high of 1.6509 last Friday as the U.S. dollar sold off like pancakes on a state fair. In fact, cable jumped by almost 450 pips from a low of 1.6060 last week. Can the pound keep up its winning streak this week?

A better than expected Nationwide HPI figure provided support for the pound last Friday when it printed a 0.3% increase in house prices for May, higher than the predicted 0.1% uptick. The improvement in risk appetite also helped boost the pound, even though the U.K. faced some uncertainties related to euro zone debt concerns.

This week, the economic highlights for the U.K. are the inflation report hearings, the release of the Halifax HPI, and the construction PMI report.

The BOE inflation report hearings are supposed to reveal how the central bank policymakers feel about price pressures and whether their current monetary policy stance is appropriate or not. Bear in mind that it's the end of the term of BOE policy committee member Andrew Sentance, the biggest hawk in the bunch. If his replacement Ben Broadbent proves to be on the doves' side, the BOE would be less likely to tighten its monetary policy anytime soon. Make sure you find out how it all turns out during the inflation hearings on Tuesday.

By Wednesday, the Halifax HPI is expected to print a 0.4% increase in house prices, a rebound from the 1.4% decline seen last April. If the Nationwide report came in stronger than expected, we might just see an upside surprise from the Halifax figure as well. If that happens, watch out for more gains from the pound pairs!

Then, on Thursday, the construction PMI will be released. The index is estimated to climb from 53.3 to 53.8 in May, which would indicate that the industry expansion is getting stronger. Better than expected figures could boost the pound even higher but, if the actual reading disappoints, the pound could be forced to return its recent gains.

[PipDiddy]

As yesterday’s bank holidays in the U.S. and the U.K. flushed out almost two-thirds of the usual trading volume, market focus turned to the euro region. But that doesn’t mean that the pound failed to get any action! GBP/USD capped the day 36 pips lower than its open price at 1.6470, while EUR/GBP dipped by 13 pips to .8672.

It looks like the pound bulls and bears might be able to extend their vacation for one more day as there are no economic reports scheduled in the U.K. today.

You might want to watch for news from the euro region though, as word around the street is that the Greek and other EZ officials are having a hard time agreeing to a solution to the region’s sovereign debt crisis. What’s more, the Greenback looks like it’s gaining back its muscles!

Be careful in your trades today, kids!

[PipDiddy]

Boo hoo! The pound got clobbered by the Greenback yesterday as GBP/USD dropped by almost a hundred pips from a high of 1.6548 to close at 1.6451. Against the yen, the pound performed much better as it ended the day 81 pips higher than its 133.30 open price. How will today's U.K. reports impact the pound?

The U.K. is set to release a bunch of economic data today. First up at 8:30 am GMT is the manufacturing PMI for May, which is expected to dip from 54.6 to 54.2. But don't go hatin' on the pound just yet! Recall that the Royal Wedding took place just before May and it could still have a residual impact on the first couple of weeks of the month. With that, stay on your toes for a possible upside surprise which could boost the pound.

Next is the net lending to individuals report, which could show that new credit issued to consumers more than doubled from 0.5 billion GBP in March to 1.1 billion GBP in April. A higher than expected figure could be bullish for the pound pairs because it would imply that consumers are financially confident enough to swipe their credit cards and take on loans. Watch out for the actual report due 8:30 am GMT.

Also due at that time is the M4 money supply and the mortgage approvals data. Both figures are slated to have minimal impact on the pound's movement but it'd help to keep an eye out for those reports just the same. After all, an increasing money supply could spur inflation, which could lead to an interest rate hike somewhere down the road. Meanwhile, higher mortgage approvals could have a positive effect on future consumer spending.

[mrchilled]

Dont you mean 9:30am GMT?

[DoubleEcho]

No, he means 8.30gmt, which equates to 9.30 british summer time.
Clocks went forward 1 hour on March 27.