Daily Economic Commentary: United Kingdom

[PipDiddy]

With risk appetite still on a roll, the pound hammered away against the dollar and yen yesterday. GBP/USD rose another 52 pips to close at 1.5493, while GBP/JPY finished at 119.51, up 93 pips from its opening price. Boo yeah!

So what caused the pound’s good fortune yesterday?

Apparently, people still believe in good ol’ France, as the French bond auctions were largely successful. In addition, the Spanish bond auctions also generated positive interests, as yields on 10-year Spanish bonds went for 5.403%, way down from the 6.975% we saw two months ago.

This helped alleviate some tensions in the market, allowing high yielding currencies like the pound to gain some ground.

For today, we could be in for some wild moves, as monthly retail sales figures are due at 9:30 am GMT. Word through the forex grapevine is that the holiday season did some good for retailers, as sales are projected to have increased by 0.6%. If the figure comes in even higher than that, we might see GBP/USD bust right through the 1.5500 handle!

[PipDiddy]

The pound was too fly in Friday's trading to be depressed by concerns about the euro zone. GBP/USD extended its upward rally, ending the week at 1.5568, 75 pips above its opening price for Friday.

So what kept the pound afloat? Well, I have a feeling that it might have been the retail sales report we saw from the U.K. According to National Statistics, consumer spending picked up in December and rose by 0.6%, erasing the 0.5% decline we saw for November. However, looking deeper in the report I found out that retailers had to make crazy price cuts just to get customers shopping which means that the uptick may only be temporary. Then again, the figure was what analysts had expected, so I guess it was good enough for traders.

Our forex calendar is blank for reports from the U.K. today but keep tabs on market sentiment, ayt? Remember that the currency usually rallies when risk appetite is up. Good luck!

[PipDiddy]

And the pips just keep comin' for the pound! Even though BOE member Adam Posen had a few dovish things to say about the economy, the pound was able to extend its rally for another day. GBP/USD climbed another 42 pips on the day, recording its 6th straight day of gains.

The only news to come out of the U.K. was from Adam Posen's lips. According to the policymaker, even though the outlook for the economy has improved, the U.K. might still need a boost in the form of more quantitative easing. But no one was really surprised to hear that from Posen. After all, he did vote for more QE all throughout 2011!

Up ahead, we have public sector net borrowing data on tap at 9:30 am GMT. Survey says that we'll probably see net borrowing slide from 15.2 to 12.4 billion GBP. Look for the pound to strengthen in the event net borrowing comes in lower than expected because it would imply that the U.K.'s austerity measures have been effective in slashing government borrowing!

[PipDiddy]

The pound chalked up another day in gains against the Greenback as GBP/USD breached the 1.5600 handle and closed at 1.5619. GBP/JPY also had its share of wins as it successfully cleared the 121.00 hurdle and landed at 121.40.

U.K.'s public sector net borrowing report came in better than expected as it printed a 10.8 billion GBP figure instead of the projected 12.4 billion GBP deficit. The smaller deficit for December indicates that the government needed to borrow less money for the month, reflecting that the austerity measures are doing their trick.

However, towards the end of the London session, BOE Governor King gave a speech which hinted at the prospect of further QE from the central bank. Apparently, their head honcho is still gravely concerned about the ongoing euro zone debt problems and its potential impact on the British economy. With that, he pointed out that the BOE is ready to provide extra liquidity should their banks need it.

For today, the BOE is set to release the minutes of its latest monetary policy meeting. Recall that the central bank decided to make no changes to its monetary policy during their latest decision, but the minutes could reveal how many members actually wanted to see further easing. Sit tight during the release at 9:30 am GMT because it could usher in extra volatility for the pound pairs!

Also due then is the preliminary GDP figure for the U.K. After expanding by 0.6% in the third quarter of 2011, the British economy is expected to contract by 0.1% during the last quarter of the year. An even larger than expected contraction could be very negative for the pound so make sure you stay tuned for the actual release at 9:30 am GMT.

The CBI industrial orders expectations, index of services, and BBA mortgage approvals report are also due at that time but these data could take a backseat to the MPC meeting minutes and U.K. GDP. Nevertheless, it'd help to keep an eye out for these figures if you're trading any of the pound pairs!

[PipDiddy]

Mixed trading for the pound yesterday, as it succumbed to the euro but managed to edge higher versus the dollar. EUR/GBP crawled back up to .8369, up 28 from its opening price, while GBP/USD finished at 1.5669, marking a 40-pip victory on the day.

The reason why the pound dropped against the euro was thanks to BOE meeting minutes, which revealed that King and the rest of his monetary policy gang believe that the expansion of the bank’s asset purchase program (a.k.a quantitative easing) is very likely. Given that the U.K. economy shrank more-than-expected by posting a 0.2% decline and could very well re-enter another recession next quarter, it’s not surprisingly at all that the BOE may want to give the markets a fresh shot of liquidity.

For now, the central bank will wait for current measures to finish before implementing another round of asset purchasing. I’d also keep an eye out on inflation, as lower-than-expected inflationary pressures would certainly be welcome, as it would give the BOE more room to dump fast cash into the economy.

Later today at 11:00 am GMT, CBI realized sales figures will be available. The index is expected to print at -2, indicating a drop in sales over the past month. If the report comes in better-than-expected, it could give the pound the boost it needs to extend its gains versus the dollar and reverse its losses against the euro.

[PipDiddy]

Is the pound's rally finally about to come to an end? It posted its 9th straight victory against the dollar yesterday, but it didn't really do it convincingly. GBP/USD rallied to a high 1.5735, but it couldn't keep its head above the 1.5700 handle. It eventually ended the day at 1.5687, up only 18 pips on the day.

Sadly, the only bit of information to come out of the U.K. came in the form of a worse-than-expected CBI realized sales report. According to the latest stats, spending took a big dip this month, forcing the index to fall from its reading of 9 to -22 (versus forecasts which called for a reading of -2).

To put things into perspective, this is the BIGGEST drop U.K. retail sales has experienced in three years! Spending stalled in January as compared to December, when many took advantage of holiday discounts.

Our economic calendar will be blank for the U.K. today, but do set your eyes across the Atlantic Ocean if you plan on trading GBP/USD. The U.S. is slated to publish its quarterly GDP report in the New York session, and that could serve as a catalyst for big moves on GBP/USD. Good luck, folks!

[PipDiddy]

Clean sweep baby! For the second straight week, cable shut out the dollar, posting another 44 pip victory on Friday to finish at 1.5731. For those of you who can’t do simple math, that’s TEN straight days that GBP/USD has closed higher! Boomshakalaka!

The big question is, will cable be able to extend its winning ways? Or will it finally give in to some short-term profit-taking midway through this week?

No data coming out from the U.K. today, but make sure you keep our awesome economic calendar bookmarked, as we’ve got the construction and services PMIs coming out later this week. I’ll be sure to keep y’all posted!

[PipDiddy]

Just like Rafael Nadal who lost the Australian Open to my homeboy Novak Djokovic, the pound also failed to snatch a win against the dollar. GBP/USD traded lower yesterday and ended the day 34 pips below its opening price at 1.5702.

With our forex calendar blank for reports from the U.K. yesterday, it seems like the pound fell victim to market sentiment which was heavily influenced by the disappointing EU Summit. Boo!

Now, if you’re looking to play the pound today, be sure to keep in mind these reports that we have on tap:

Earlier we saw the GfK Consumer Confidence index for January come in better than expected at -29. The report should be positive for the currency as analysts were bracing to see that pessimism was more intense with the forecast down at -31.

Later at 9:30 am GMT, we’ll have the BOE’s data on net lending for December. The report is expected to show that 1.2 billion GBP worth of credit was issued during the month. A figure higher than the consensus will probably be bullish for the pound as lending is seen as positively correlated to consumer confidence and spending. So watch out!

[PipDiddy]

It looks like the cable bulls just needed a one day break before it could resume its crazy run! Once again, the bulls came out on top, as GBP/USD posted an impressive 55-pip win to finish at 1.5757. Could this be the start of another winning streak?

Net lending figures came in lower-than-expected, as just 400 million GBP was lent out last month. Expectations were that 1.2 billion GBP would be given out in loans in order to help boost consumer spending. Nevertheless, this didn’t have a negative impact on the pound, as it continued to strut up the charts with some swagga as risk appetite got a nice boost during yesterday’s London session.

For today, we’ve got the nationwide HPI and manufacturing PMI reports coming in at 7:00 am GMT and 9:00 am GMT respectively. My sources tell me that home prices dropped by just 0.1% last month, while the manufacturing PMI is expected to finally print at 50.1. A positive increase in home prices and a better-than-expected PMI score would both help the pound’s cause and could help GBP/USD break through the 1.5800 barrier.

[PipDiddy]

Whoa! Pound bulls partied like it's the end of the world on the charts yesterday. Thanks to positive data and risk appetite, GBP/USD was able to end the day 71 pips above its opening price at 1.5828. Boo yeah!

It looks like overall market sentiment was boosted by optimism Greece will soon come into terms with its creditors and positive Chinese data. Of course, it also helped the pound that the U.K.’s manufacturing PMI came in higher than expected. It was reported that manufacturing activity jumped to an eight-month high, printing at 52.1 in January. The figure topped expectations which were for a more modest increase to 50.1 following December’s 49.7 reading. Yahoo!

Whether the growth in manufacturing is only seasonal or if it's going to be a trend, we will have to wait a few more months to find out. Until then, let us keep tabs on the construction PMI report for January (due to be released later at 9:30 am GMT) to help us gauge which direction the pound will head on the charts. The forecast is for construction activity to have pulled back a little bit during the month to 52.8 following the 53.2 reading we saw for December.

A positive report will probably score the pound another win against the dollar, so watch out!