Daily Economic Commentary: United Kingdom

[PipDiddy]

GBP/USD found itself slightly lower yesterday, no thanks to the disappointing construction PMI figures. By the end of the U.S. trading session, GBP/USD sat at 1.5802, which was 26 pips lower from its opening price that day.

The construction PMI, the only tier 1 report that came out of the U.K., printed a reading of 51.4 instead of the 52.8 figure initially expected. This resulted in Cable retracing some of its gains from the days prior. Overall, however, price action was pretty much muted as traders sit on the sidelines ahead of the U.S. non-farm payrolls.

The only major report due from the U.K. today is the services PMI at 9:00 am GMT. The market is expecting the index to publish 50.5, just like the figure seen last month. Better-than-expected results are usually considered bullish for the pound.

[PipDiddy]

GBP/USD bounced up and down the 1.5800 handle last Friday like a seesaw. But after the pair plunged to its intraday low of 1.5750, the pound started to pare its losses and ended the day 15 pips above its opening price at 1.5817.

Aside from the positive vibes brought about by the much-anticipated U.S. NFP report, it also helped the pound that the services PMI from the U.K. came in better than expected. The index for January came in at 56.0, topping both the 53.5 forecast and its previous reading of 54.0.

Consequently, the report, along with the positive construction and manufacturing PMIs for January, has gotten a few market junkies excited that we might not hear the BOE increase its asset purchase program when it announces its interest rate decision this week. If this becomes the case, we may just see the pound post new monthly highs against the dollar. So with that said, be sure you don't miss the announcement on Thursday at 12:00 pm GMT.

Until then, pay attention to the other reports we have on tap from the U.K. For today, we have the Halifax HPI due to be released at 8:00 am GMT. It is anticipated to show that house prices increased by 0.1% in January. A better-than-expected figure will probably help keep GBP/USD trading above the 1.5800 handle in today's trading so be on your toes!

[PipDiddy]

Cable traded in an almost perfect “V” pattern yesterday as it moved in two distinct waves. During the Asian and morning European trading sessions, the pair experienced a sharp fall due to the sour market sentiment. But thankfully, optimism picked up during the U.S. trading session, which helped Cable regain its losses. By the end of the day, Cable sat at 1.5830, 12 pips higher than its opening price.

The shifting market sentiment was the result of none other than the Greek drama. Early in the day, pessimism in the market flourished as the prolonged deal on the Greek bond swap increased uncertainty. There were also rumors that Portugal would have to restructure its debt.

But later in the day, this bad news was overshadowed by some positive news from the Greek Prime Minister. Apparently, Papademos is scheduled meetings on Tuesday to discuss the country’s austerity measures to make sure the they receive the next round of bailouts.

The Halifax HPI also helped Cable recover its losses early in the day. It came out with a 0.6% gain, significantly higher than the 0.1% increase initially expected. It was also a huge improvement from the previous month’s 0.1% decline.

No major data from the U.K. today so don’t expect the Cable to exhibit a lot of volatility. Keep an eye out on those major support and resistance levels, as they may serve as inflection points.

[PipDiddy]

No weak economic report is gonna stop the pound bulls from charging! Thanks to risk appetite in markets, the pound rocketed to its 2.5-month high against the Greenback, pushing GBP/USD to close 69 pips higher than its open price. Booyah!

The only report that came out from the U.K. yesterday was the BRC retail sales monitor, which showed that sales in the BRC-member stores dropped by 0.3% in January after rising by 2.2% in December. Not only that, the BRC shop price index showed that prices of goods sold in BRC-member retail stores only rose by 1.4% in January. That’s a bit slower than December’s 1.7% price increase!

Fortunately for the pound, the pound bulls shrugged off the report and continued to buy the currency on the heels of improving risk appetite in markets.

The question is, how long will the pound’s strength last? No other report is scheduled for release today, but you might want to check out other big-hitting reports coming our way today! Read up on the other currencies, will ya?

[PipDiddy]

The pound was unable to hold its ground against the dollar yesterday and fell from its 3-month high . The GBP/USD pair ended the U.S. trading session at 1.5819, a good 82 pips lower from its opening price. A look at the pair’s daily chart would show that yesterday’s candle was a bearish engulfing one, hinting that the uptrend could soon reverse.

The pound’s sell-off was the result of traders positioning themselves ahead of today’s interest rate decision (9:30 am GMT). Most market participants, including Forex Gump, expect the central bank to keep rates unchanged but also expand its quantitative easing program.

The current program amounts to 275 billion GBP but due to the fear of a double-dip recession just around the corner, the BOE could increase it by another 50 billion GBP. If the BOE does what the market predicts, we could see the pound sell-off again.

Also watch out for the manufacturing production report. It Is slated to print a 0.3% gain, opposite the 0.2% decrease seen the month before.

[PipDiddy]

What’s that? More economic stimulus for the U.K.? Tough luck! Except for the yen, the pound weakened against all of its major counterparts yesterday when the MPC voted to boost its government bond purchases by 50 billion GBP. Cable fell from its intraday high of 1.5886 and closed at 1.5817.

In its monetary policy decision yesterday, the Monetary Policy Committee announced that it would buy another 50 billion GBP worth of government bonds within the next few months. Apparently, the monetary policymakers believe that it will be enough to boost economic growth and avoid a recession.

Investors weren’t too impressed though. Aside from already expecting the decision, they also recognize that the U.K. is facing an uphill battle with the euro zone debt crisis and the country’s tight lending conditions.

Not even the positive economic reports were enough to save the day. Yesterday the manufacturing production report showed a 1.0% growth in December, beating estimates of only a 0.3% growth. The country’s trade deficit also narrowed down to 7.1 billion GBP in December, which is a bit better than the 8.9 billion GBP trade deficit we saw in November.

The industrial production report should’ve also cheered the markets up when it printed a 0.5% growth in December after contracting by 0.5% in November. Lastly, the NIESR GDP estimate steadied its 0.2% contraction forecast for January.

For today we’ll only get to see the PPI report coming up at 9:30 am GMT. The key figure is expected to grow by 0.4% in January after falling by 0.6% in December, but make sure you keep your eyes peeled for any surprises!

[PipDiddy]

The pound took nasty tumble last Friday as risk aversion crept back in the markets. GBP/USD slipped to a low of 1.5730 and closed at 1.5736 while GBP/JPY ended the day 16 pips up from the 122.00 handle.

Economic data from the U.K. came in line with expectations as their PPI input and reports both printed 0.5% upticks. However, this hints that inflation in the U.K. may not be as subdued as the central bank officials projected, as rising producer prices would eventually translate to increasing consumer price levels.

Better stay on your toes for a potential upside surprise during this week's U.K. CPI release on Tuesday 9:30 am GMT. The report is expected to show a 3.6% annual increase price levels for January, down from December's 4.2% figure. Also due on Tuesday is the BOE's inflation letter, which would contain the central bank's analysis of the U.K.'s most recent CPI figure.

On Wednesday, the U.K.will release its claimant count change report as well as its jobless rate. The number of claimants is expected to reach 3.3K for January, up from the 1.2K seen last December, while their unemployment rate could hold steady at 8.4%.

Last but certainly not least is the U.K. retail sales report set for release on Friday 9:30 am GMT. Spending is expected to be down by 0.3% in January after seeing a 0.6% rise in December. Stay on your toes if you're trading this week's reports!

[PipDiddy]

D’oh! That was so close! Just when we thought that the pound is headed for gains against its major counterparts, GBP/USD fell back down to its 1.5570 open price, while GBP/JPY also inched lower from its 122.94 intraday high to close at 122.34.

Data revealed yesterday showed that the RICS house price balance, an index of property surveyors, remained at a -16% reading in January. This indicated that there were more property surveyors who eased their prices than those who raised them.

Good thing the markets were focusing on the country’s inflation! At 9:30 am GMT today we’ll see the country’s CPI report. If inflation prints weaker than the expected 3.6% price growth in January, then the BOE might have more reason to inject more money in the economy.

Also keep an eye out for the CB leading index at 10:00 am GMT and the BOE inflation letter coming up some time today if the CPI report once again exceeds the BOE’s 3.0% target.

We’ve got some big-hitting reports today, folks, so you better have your trading discipline in place!ruary

[PipDiddy]

The pound got its heart broken by the Greenback yesterday as GBP/USD started the day at 1.5770 then ended up at 1.5685. Against the yen, on the other hand, the pound was able to score a win as it landed 3 pips above the 123.00 handle.

The pound really took it hard when credit rating agency Moody's decided to put the U.K. on negative watch for a downgrade as the British government struggles to trim their deficit. Moody's pointed out that the country's weak economic standing could further complicate things and undermine the impact of the austerity programs. Talk about Moody's ruining the Valentine's Day mood, huh? For more on Moody's recent announcement concerning the U.K., check out my buddy Forex Gump's recent article!

As for economic reports, U.K. CPI came in line with expectations and showed a 3.6% annual increase in price levels for January. This was a huge drop from the 4.2% figure seen last December, confirming that inflationary pressures are indeed slowing down as central bank officials predicted. In fact, BOE officials project further declines in the U.K. CPI as weak consumer spending could force stores to offer more sales and discounts.

Today is another big day for the pound as the U.K. is set to report its claimant count change, as well as its jobless rate for January. The number of claimants for the month is expected to reach 3.2K, almost thrice as much as the 1.2K figure for December. Despite that, their unemployment rate is expected to hold steady at 8.4%. Keep an eye out for that at 9:30 am GMT.

Also due today is the BOE inflation report, which should shed some light on the recent U.K. CPI figure and the BOE's inflation expectations. This report is set for release at 10:30 am GMT, along with BOE Governor Mervyn King's speech.

With plenty of red flags on tap, it's bound to be another topsy-turvy day for the pound so hang tight!

[PipDiddy]

The pound muscled through weak U.K. employment data to bag some pips against its two main counterparts. While GBP/USD crept up 14 pips to 1.5699, EUR/GBP recorded a 42-pip loss on the day as it closed at .8323 after testing the .8400 handle. You can't keep a good pound down!

Though the U.K.'s unemployment rate remained at its 16-year high at 8.4%, the British currency was able to keep its head above water. Apparently, the labor market saw an increase of 6,900 in the number of claims for unemployment benefits last month, which is more than twice the expected figure. Ouch! Looks like the U.K.'s slump is really doing a number on the labor market, eh?

I suppose this is one of the reasons why BOE Governor Mervyn King sounded so dovish in his speech yesterday. He basically gave the central bank the green light to increase its asset purchase facility in case significant downside risks materialize. And to think, the BOE just increased its asset purchase facility last week! Now, King is considering another expansion?! Yowza!

But there is one thing that might keep the BOE from further easing - inflation! In the central bank's inflation report, it predicted that it won't be able to hit its target of 2% in two years, though it did say that there's an even chance of meeting it within 3 years.

In other news, the Nationwide consumer confidence report just came out, and boy was it a breath of fresh air! After seeing yesterday's downbeat reports, it was nice to see that U.K. consumer confidence was at a 5-month high in January. The index rose from a reading of 38 to 47, beating forecasts which called for a reading of 40.

No more reports on tap today. In the meantime, I suggest you track developments in the euro zone! Mervyn King sounded worried about the spillover effects of the European debt crisis for a reason!