Daily Economic Commentary: United Kingdom

[PipDiddy]

Weak data ain't got nothin' on the pound, baby! Despite disappointing manufacturing figures yesterday, both GBP/USD and GBP/JPY traded higher. By the day's close GBP/USD was up 89 pips from its opening price at 1.5577. Meanwhile, GBP/JPY closed at 123.81 after opening at 123.07.

It was reported that manufacturing production contracted by 0.7% in April and disappointed the market forecast which was for the report to come in flat for the month.

Luckily for the pound, good vibes and risk appetite were rollin' all over the markets yesterday with investors optimistic about Spain getting enough cash to recapitalize its banks.

With that said and given that our forex calendar is blank for reports from the U.K. today, be sure you keep tabs on market sentiment, ayt? Keep in mind that the pound usually rallies when risk appetite is in play and it doesn't do so well when risk aversion kicks in. Good luck!

[PipDiddy]

The pound may have been stable for the most part of the day, but the bears sure do know how to rock things up at the end of the day! GBP/USD, after trading within a 50-pip range for the entire Asian and European trading session, was sold-off heavily during the U.S. session when Egan-Jones, a credit rating agency, announced that it had downgraded Spain’s rating to CCC+ with a negative outlook.

Looking ahead, it seems that GBP/USD has room to fall further. Apparently, traders are speculating that the Bank of England (BOE) could opt for more monetary easing later this year to protect the British economy from the spillover effects of the euro zone crisis. Traders believe that the BOE could expand its quantitative easing program to 450 billion GBP from the current 325 billion GBP.

The U.K.’s economic calendar for today presents nothing of interest as only the CB Leading Index is scheduled for release. Historically, the index hasn’t had an impact on GBP/USD at all. I don’t suspect the upcoming release to be any different!

[PipDiddy]

What’s that? More QE from the BOE? No problem! The pound bulls were able to flex their muscles yesterday despite the release of bearish reports in the euro zone. Cable went up to 1.5559, while Guppy also enjoyed a 27-pip rally? What happened exactly?

Nothing much, if you take a look at the CB leading index, the only economic data released from the U.K. The report only printed a 0.2% growth in April after rising by as much as 1.1% in March.

Even Mervyn King’s speech shouldn’t have boosted the pound so much. The BOE Governor not only stressed the deterioration of the debt crisis in the euro zone, but he also hinted that the central bank will soon implement additional quantitative measures. Apparently, among their options is launching a long-term bank-lending program that could help local banks lend to individuals and businesses.

Good thing that the pound traders were looking at the bigger picture. As it turned out, King wasn’t the only central bank official talking stimulus. Central bankers from the euro zone, the U.S., Japan, and even the G20 officials have been giving speeches left and right, saying that they are prepared to launch coordinated actions in case the markets go downhill after the Greek elections this weekend.

Let’s hope that there won’t be any need for dramatic actions! Only the trade balance report at 8:30 am GMT is scheduled for release in the U.K. today, so you might want to keep a close eye on any news that might affect sentiment for high-yielding currencies!

[PipDiddy]

“Victory” cried the bulls last Friday as they were able to drive Cable of its ascending triangle formation. Cable broke past the 1.5600 major resistance level to close the U.S. trading session 142 pips higher at 1.5701.

While Cable ended the day with a huge gain, it wasn’t like that the entire day. Initially, Cable fell due to poor data. The country’s trade balance deficit widened significantly to 10.1 billion GBP from 8.7 billion GBP. The forecast was for the deficit to shrink to 8.5 billion GBP. Thanks to bad data elsewhere, specifically in the U.S., the negative trade balance was eventually forgotten, and Cable was able to recover its losses.

Cable’s forex calendar this week is jam-packed with high profile events.

On Tuesday, the U.K.’s consumer price index will be published. It will come out at 8:30 am GMT and it is anticipated to show a 3.0% inflation rate, just like the month before. Usually, higher-than-expected results are considered bullish for the currency.

On Wednesday, watch out for labor data and the MPC Meeting Minutes at 8:30 am GMT. The market expects unemployment in the U.K. to remain at 8.2% even though the number of jobless people is predicted to fall by 3,100. Meanwhile, the MPC Meeting Minutes is slated to show that all 9 voting members chose to hold rates in their most recent meeting.

On Friday, the retail sales report is due. Like the rest, this report will be released at 8:30 am GMT. It is anticipated to show a gain of 1.1%, opposite the 2.3% decline seen the month before.

There's a lot of data on tap, so we could see a lot of volatility from Cable! Be careful out there!

[PipDiddy]

While the pound bid cheerio to profits against the Greenback, it was able to extend its gains against its other counterparts. While Cable slipped by 46 pips to 1.5668, EUR/GBP also fell to .8028 while GBP/JPY registered another 24-pip gain.

No major report was released from the U.K. yesterday, so the pound traders busied themselves with risk appetite from the favorable Greek election results.

And then, of course, there are also traders who continued to buy the sterling after Mervyn King announced possible plans to protect the British banks from the euro zone crisis last Friday. Unfortunately, more quantitative easing from the BOE is also on the table for investors.

Will the CPI report scheduled today at 8:30 am GMT fuel the QE speculations? The data isn’t expected to print any different from its previous 3.0% figure, but an upward surprise might hold back predictions of more easing from the central bank.

Also keep an eye out for the retail price index and house price index released at the same time as the inflation numbers. Both reports are seen to print lower figures than their previous readings, but make sure you watch closely for surprises!

Last but definitely not the least is the BOE’s quarterly inflation report out at 11:01 pm GMT, where the BOE will release its forecasts and predictions on the economy. Don’t even think of missing it!

[PipDiddy]

"I get knocked out, but I get up again. You're never gonna keep me down," sang the pound yesterday as it managed to bounce back up after a weak U.K. CPI release. GBP/USD dipped to a low of 1.5615 then closed at 1.5731 while GBP/JPY ended the day at 124.20.

U.K. annual CPI figures for May came in weaker than expected as the headline reading landed at 2.8% while the core version of the report showed a 2.2% increase. Analysts were expecting the headline CPI to stay at 3.0% and the core CPI to print a 2.3% rise. With subdued inflationary pressures in the U.K., many are now speculating that the BOE has enough room to conduct another round of easing measures in their next policy statement. Based on recent economic data from the U.K., it does look like their country could use more stimulus!

Today, the U.K. claimant count change is set for release and the report is expected to show a 3.1K drop in claimants for May. A larger than expected decline would be positive for the pound while an increase in joblessness could force pound pairs to return their recent gains. Make sure you keep an eye out for that release at 8:30 am GMT.

Also due today are the minutes of the latest monetary policy meeting of the BOE. This should shed light on why the central bank decided to keep rates on hold during their previous statement and could contain hints about their future monetary policy moves.

[PipDiddy]

Look who joined the dove camp! Yesterday the MPC shocked the markets when it printed a ridiculously close 5-4 vote on additional stimulus. And get this – BOE head honcho Mervyn King is officially on the dove camp! So how did the news affect the pound?

The pound ended the day mixed against its counterparts yesterday. GBP/USD gave up 27 pips and EUR/GBP bagged a 13-pip gain, but GBP/JPY also rose by 61 pips.

The MPC minutes was initially bearish on the pound as the close call hinted at more quantitative easing at a not-so-distant future. The data showed that the MPC folks believe that threats from the euro zone and the other weakening major economies have increased.

The employment figures weren’t any help either. Though the unemployment rate held steady at 8.2% in May, claimants of unemployment-related benefits have soared to 8,100. That’s a lot more than the 4,000 that analysts were expecting!

Fortunately for the pound, investors are attracted to stimulus like bees to honey. The prospect of more money to boost the economy next month spurred bullish trades in the later trading sessions.

Will the economic reports scheduled today be of any help to the pound bulls? At 8:30 am GMT we’ll see the retail sales report, which will be followed by the CBI industrial orders expectations at 10:00 am GMT. The retail sales data is expected to improve to a 1.1% gain from a 2.3% slip, but stick around in case we see any surprises!

[PipDiddy]

Despite the strong retail sales data, the pound was unable to hold its own against the safe haven dollar yesterday. Risk aversion reared its head in the foreign exchange market again, which allowed the pound bears to just sell, sell, and sell! GBP/USD, which began the day at 1.5704, found itself 118 pips lower at the end of the U.S. trading session at 1.5586.

The retail sales report showed a nice 1.4% gain. This was much higher than the 1.1% increase initially predicted and opposite the previous month’s 2.4% decline. Unfortunately, this wasn’t enough to boost optimism as data from other parts of the world, most especially those from the U.S., failed to meet market expectations.

The U.K.’s economic calendar today is empty, but given the recent surge in risk-off trades, we could see Cable continue to lose ground. Watch those support levels on Cable folks, as they could very well break!

[PipDiddy]

After Thursday's big losses, the pound was able to hold its ground against the Greenback, as GBP/USD ended the day almost unchanged at 1.5583 on Friday. Will its descent continue this week?

Not much action on GBP/USD last Friday. But considering the big drop that we saw on Thursday and the lack of heavy reports on Friday, can you blame traders from taking a breather?

This week, we only have a couple of red flags to keep an eye out for. The first major report, public sector net borrowing, is due tomorrow at 8:30 am GMT. After that, at 9:00 am GMT, we'll take at the latest inflation report hearings.

Then we'll pick up on Thursday, with the current account balance and final GDP report set to come out at 8:30 am GMT.

But until these heavy hitters come out, it looks as though we'll have to trade based on underlying market sentiment for the pound, which seems to favor the bears on growing speculation of more stimulus from the Bank of England.

[PipDiddy]

After gapping down over the weekend, GBP/USD swung this way and that before it managed to end the day in the green by closing 11 pips up from its 1.5562 open price. GBP/JPY, on the other hand, didn't have such a good day as it chalked up a 123-pip loss from its 125.24 open price.

Although the U.K. didn't release any economic reports yesterday, pound pairs were weighed down by risk aversion from news of Moody's downgrades and Spain's request for a bailout. Luckily for GBP/USD though, stronger than expected U.S. data triggered a bit of safe-haven dollar selling.

The U.K. is set to release its public sector net borrowing report today which would reveal the difference in income and spending for government offices. The figure for May is expected to come in at 13.6 billion GBP, which would reflect a budget deficit. A higher than expected reading would mean that the government owes much more than its making, and this could be negative for the pound. Keep an eye out for the actual release at 8:30 am GMT.

Also scheduled for today are the U.K. inflation report hearings, which could contain information on future BOE monetary policy decisions and whether the central bank could have more room to ease or not. Pay close attention to the remarks during the hearings to find out if the BOE might implement another round of stimulus in their next statement!