Daily Economic Commentary: United Kingdom

[PipDiddy]

Though the U.K. reports we got yesterday weren't exactly bull-friendly, the pound was able to chalk up decent gains against the dollar. Cable began its rally at the very start of the day, and by the end of the New York session, it had reached 1.5643 for a 70-pip gain on the day.

Public sector net borrowing rose to 15.6 billion GBP last month (2 billion GBP more than expected), as the government racked up debt to make up for a shortfall in income tax collections and an increase in spending. Hmm... Now that ain't exactly what you want to see from a country that's supposedly trying to cut its debt! If this keeps up, Chancellor George Osborne will have a hard time meeting his austerity target this year!

Meanwhile, the inflation report hearings brought grim news as BOE Governor Mervyn King declared that economic conditions have worsened in the U.K. in light of the euro zone debt crisis. Aye caramba! According to King, he was "struck by how much has changed" since the last time the BOE produced its inflation report.

But apparently, it ain't just the euro zone that has King worried. He said he's particularly concerned about worsening conditions in Asia and other emerging markets. He even added that the central bank hasn't ruled out a possible move to slash interest rates to boost the economy.

Today, we only have a couple of second tier reports on tap. First up is the BBA mortgage approvals report due at 8:30 am GMT. Look for mortgages to rise from 32,400 to 32,800 in May. Then at 10:00 am GMT, CBI realized sales data will be released. According to forecasts, the index will probably record a fall from 21 to 12 for the month of June.

[PipDiddy]

It was rough sailing for Lady Cable yesterday, as it gave back all its gains versus the dollar. GBP/USD dropped 77 pips to finish at 1.5566. Is the pound in for more losses today or can the bulls make a comeback?

Mixed data may have been cause for the pound’s downfall yesterday.

The British Banking Authority released a report that indicated that the number of mortgage approvals for last May came in at just 30,200. This was worse than the projected figure of 32,800, and a significant drop from April’s pace of 32,100.

This is indicative of two things. First, that not as many consumers are qualifying for mortgage loans. Second, those who do qualify are holding back on adding any additional debt.

On the flip side, the CBI realized sales report printed much higher than expected, coming in at 42. It was projected to have a score of just 12. This means that more retailers reported higher sales in the past month.

If the report came in that much better-than-anticipated, why didn’t the pound rally?

Apparently, the CBI believes that the figures are a fluke and may have been distorted by additional holidays over the past month. We’ll have to wait till next month’s release to see whether this is true or not.

For today, we’ve got a whole slew of data headed our way during the London session.

First, more housing data in the form of the Nationwide HPI will be available at 6:00 am GMT. Word on the street is that housing prices rose by 0.3% in the past month.

Later on at 8:30 am, we’ve got a trio of reports headed our way.

The current account is expected to show a deficit of 8.9 billion GBP. No surprises here, the account has been in the red since mid 2003!

The Bank of England will also be releasing its credit conditions survey, which should help provide more insight into the state of British lending. If it shows that credit conditions are deteriorating, it would simply be in line with other data that we’ve received lately.

Lastly, the final quarterly GDP report is projected to show no changes from the previous release, which indicated that the British economy dropped by 0.3% last quarter.

If all these reports come in weaker-than-expected, it could trigger another pound sell-off midway through the London session.

Phew, that was a long one! Good luck trading today homies!

[PipDiddy]

Risk aversion and weak U.K. data did a real number on the pound yesterday as they teamed up to drag the British currency down the charts. GBP/USD hit a new two-week low as it slid 52 pips to 1.5514.

Sellers took full control of GBP/USD once the market caught sight of yesterday's downbeat U.K. data. Not only did the U.K. post a wider-than-expected current account deficit of 11.2 billion GBP (versus forecasts for 8.9 billion GBP), but it was also confirmed that the economy shrank 0.3% in Q1 2011. What's worse is that apparently, the U.K. slipped into recession earlier than previously thought!

Hmm... It seems the case for more QE has strengthened, as more and more analysts think we'll see some sort of easing in the BOE rate decision next week. A survey of economists actually reveals a 75% chance that the central bank will bump up its asset purchase program by another 50 billion GBP.

It'll be quite interesting to hear what my homeboy, BOE Governor Mervyn King has to say about all this as he's expected to hold a press conference alongside the release of the BOE financial stability report at 9:30 am GMT. If the central bank head speaks dovishly and hints about more QE, it could very well trigger another strong round of pound selling!

[PipDiddy]

Nothing like a shot of good news to spruce up risk appetite! Thanks to a positive reaction t oteh EU summit, the pound bulls went wild like it was a Beatles concert, boosting the pound to new highs. GBP/USD rose a whopping 217 pips to finish at 1.5661, while GBP/JPY closed 194 pips higher at 125.19.

It turns out that Mervyn King’s speech became a non-event, as it was overshadowed by the results of the EU summit. Despite the rosy sentiment in the markets, King still warned banks about potential hurdles down the road and urged banks to shore up their capital. According to King, this should be a higher priority than paying out cash reserves in the form of dividends or giving out big bonuses. I gotta admit, he makes an excellent point!

For the next three days, we’ve got a slew of purchasing manager’s indexes coming out, starting with the manufacturing PMI due today at 8:30 am GMT. The index is projected to have increased slightly from 45.9 last month to 46.6 for this month’s reading. If the index comes in even higher than anticipated, it could trigger another round of pound buying today.

[PipDiddy]

Pound bulls sure know how to put on a good show! GBP/USD traded lower during the Tokyo session and tapped an intraday low at 1.5641. Then the bulls started to step up their game and hustled the pair past resistance at the 1.5700 to end the day 18 pips above its opening price at 1.5721.

The pound struggled a bit in yesterday's trading as traders started to become wary about the EU leaders' plans to address the debt crisis. Good thing the U.K.'s manufacturing PMI report topped expectations and gave the currency just enough support for it to end the day with a win.

Government data revealed that the U.K.'s manufacturing sector did not contract as much as analysts expected in June. The manufacturing PMI printed at 48.6 versus the 46.6 consensus.

However, despite the better-than-expected figure, some market junkies warn that you shouldn't get too excited about the report as it translates to the second month of contraction for the sector. (A figure over 50.0 would've meant that the manufacturing sector expanded during the month.) Just something to keep in mind!

Today, our forex calendar lists a few reports for the pound and all of them are due at 8:30 am GMT.

Perhaps the construction PMI will have the biggest market impact from today's roster, so remember that the consensus is for the report to come in at 52.9 following the 54.4 reading for May. Along with it, the BOE will also release its data on new credit issued for May. The forecast is for net lending to individuals to have amounted to 1.1 billion GBP. Lastly, we'll also get the number of new mortgages approved in May and it is anticipated to come in at 51,000.

If you're looking to buy the pound today, keep your fingers crossed for better-than-expected figures. However, if you're planning to sell the currency, watch out for disappointing numbers. Good luck!

[PipDiddy]

Not too much action on pound pairs yesterday, which pretty much traded within their daily ranges. GBP/JPY struggled to break above its weekly open price at 125.30, while GBP/USD finished slightly lower at 1.5690, just 30 pips below its opening price.

We got mixed results on the economic data, as the construction PMI and net lending to individuals reports had contrasting releases.

The construction PMI came in much worse-than-expected, printing at 48.2, after it was projected to come in at 52.9 This marks the first time since January 2011 that the index has printed in the red and indicates potential contraction in the construction industry.

On the other hand, credit conditions seem to be better than initially estimated, as consumer loans amounted to 1.3 billion GBP last month, which is slightly higher than the anticipated 1.1 billion GBP figure. Hopefully, credit conditions continue to hold up and we see more lending and spending take place in order to boost the U.K. economy.

For today, all we’ve got on our plates is the services PMI, due at 8:30 am GMT. According to our trusty economic calendar, the index is projected to print at 52.9. If we see the report come in much better-than-expected, it could give the pound a slight boost up the charts!

[PipDiddy]

Look down below! The pound dropped like a rock in yesterday's trading following the disappointing data that were released from the U.K. GBP/USD closed the New York session 100 pips below its opening price at 1.5590. Meanwhile, GBP/JPY ended the day at 124.51 after opening at 125.24.

The services PMI, considered as a leading indicator of economic health, came in at 51.3 for June. Unfortunately for pound bulls, analysts higher expectations, predicting it to come in at 52.9 following its 53.3 reading for May.

We'll probably see more action in GBP pairs today too, given that the BOE is set to announce its interest rate decision at 11:00 am GMT.

Keep in mind that expectations are for the central bank to keep interest rates steady at 0.50% but increase its asset purchase program by 50 billion GBP to 375 billion GBP. Some market junkies say that the recent string of weak economic data along with lower inflation pressures in the U.K. could be enough reason for the BOE to stimulate the economy even more.

Should BOE Governor Mervyn King announce a bigger increase in the bank's asset purchase program, we could see the pound get sold off. However, if central bankers decide against any increase, the pound could rally. So be on your toes for the announcement, ayt?

[PipDiddy]

Time to rev up the presses – the Bank of England is about to print more moolah! With the BOE adding yet another 50 billion GBP to its stimulus efforts, the pound stood no chance against the Greenback and the yen. What the heck is the BOE up to?

Though the central bank held its interest rates steady at 0.50%, the Monetary Policy Committee decided to give momentum to the U.K. banks’ liquidity by adding 50 billion GBP worth of stimulus. The move came at the tails of the BOE’s latest efforts at easing bank liquidity.

The news didn’t set well with investors, who thought that the BOE could’ve implemented other methods with less inflation risks. Not only that, but the BOE’s actions also hinted that more help might be needed in order to rise above the economy’s double dip recession. Cable capped the day 72 pips lower, while GBP/JPY also suffered a 50-pip fall.

Only the PPI input and output data are scheduled for release today, and both reports are expected to maintain their previous growth rates. Keep an eye on risk sentiment though, as traders could continue to price in interest rate cuts made by the PBoC and the ECB.

Good luck in your trades today!

[PipDiddy]

There was certainly no partying for the pound bulls last Friday. GBP/USD closed the day 37 pips lower at 1.5487 while GBP/JPY was down 70 pips at 123.30. It wasn't all bad though! Against the euro, the pound rallied to its 44-month high at .7925 before closing the day with a 49-pip win at .7931.

It's easy to say that the pound lost to the dollar and the yen because of the worse-than-expected PPI report on Friday. (Prices of raw materials that manufacturers pay for dropped by 2.2% in June and disappointed the market's -2.1% forecast.) After all, soft inflation figures could give the BOE more reason to remain dovish, right?

However, like all other higher-yielding currencies, I think that the pound's performance was primarily driven by the disappointing NFP figures that sparked risk aversion in the markets.

Today, our forex calendar is blank for market-moving reports from both the U.K. and the U.S. If you're thinking of trading the pound, it might do you well to keep tabs on market sentiment as it could continue to dictate the currency's price action in today's trading. Good luck!

[PipDiddy]

When there’s a will, there’s always a way! Despite gapping down to start the week, the pound managed to slowly edge higher throughout the day. GBP/USD closed the U.S. trading session at 1.5475, 57 pips higher from its opening price.

Even though the pound was able to rally slightly yesterday, weakness will most likely endure in the near-term as investors remain doubtful of the Bank of England (BOE)'s recent stimulus moves. Data released earlier today showed a frail housing market. The RICS House Price Balance showed more property surveyors reported a decline in the selling prices of houses.

Today, at 8:30 am GMT, the U.K. will release its Trade Balance and Manufacturing Production Report. The Trade Balance is anticipated to show a 9 billion GBP deficit while the Manufacturing Production report is expected to print a 0.1% rise. Both these reports can have a strong impact price action, so it’s important to keep a close eye on them.