Daily Economic Commentary: United Kingdom

[PipDiddy]

Different strokes for different folks! While some traders decided to dump the pound in favor of the dollar, others bought it up against the euro. As a result, GBP/USD stayed low and finished 6 pips lower at 1.5517, while EUR/GBP dropped 38 pips to undo Monday's gains and end at .7779.

The U.K. didn't really publish anything to shake up the markets yesterday. The markets barely blinked at the BBA mortgage approvals report, even though results failed to match forecasts. June only saw 26,300 approvals, instead of the 31,400 that many had predicted. Meanwhile, May's record of 30,200 was revised down to just 29,600.

Now, let's shift our attention to what's coming up - the quarterly GDP report! As I said on Monday, it's likely that we'll see a third straight month of contraction in the U.K. economy as consumer spending, trade, and government spending have all been weak as of late. As a matter of fact, most are expecting a 0.2% decline in growth!

That being the case, the markets may treat the pound bearishly today. But do be on the lookout for an upside surprise, as it could lead to a strong pound rally. Make sure to tune in at 8:30 am GMT to catch the action!

[PipDiddy]

The pound just can’t catch a break can it? Despite a risk rally across the markets, the pound found itself at the loser’s table yesterday, falling 18 pips against the dollar to finish at 1.5499, while EUR/GBP closed at .7843, up 64 pips on the day. What gives?

Unfortunately, GDP figures came in much worse than projected, as they indicated that the U.K. economy shrank by 0.7% last quarter. Not only was this much lower than the anticipated 0.2% decline, but it marked the third consecutive quarter that GDP growth printed in the red.

The question now is how will the Bank of England react? Yes, it already expanded its asset purchase program by 50 billion GBP earlier this month, but we’ve also been hearing rumors that BOE Governor Mervyn King and his buddies are thinking about cutting interest rates as well!

Nothing lined up for today, but as usual, keep an eye out on risk sentiment. Seeing as how other higher yielding currencies rallied yesterday, lets see if the pound bulls can catch up and erase some of yesterday’s losses.

[PipDiddy]

Yowza! It's not everyday that you see GBP/USD jump by 200 pips! Cable finally broke out of its consolidation around the 1.5500 mark and rallied to the 1.5700 handle before closing at 1.5691. GBP/JPY had its fair share of gains as it climbed from its 121.16 open price to close at 122.71.

At first, I thought that it was all that excitement about the London Olympics that drove the British pound higher against most of its major counterparts yesterday. But, upon closer inspection, I realized that the pound was being lifted by renewed risk appetite due to ECB head Draghi's pledge to support the euro. This commitment from none other than the euro zone central bank President himself was more than enough to ease fears of a potential euro zone breakup, which was one of the main factors weighing on risk during the past few days.

The U.K. didn't release any economic reports yesterday and won't be releasing any today, which means that the pound could keep movin' and groovin' to the tune of risk sentiment. Be careful out there!

[PipDiddy]

Two in a row, baby! The pound bulls charged happily last Friday, and no, it’s not because they saw the “Queen” jump from a helicopter in the 2012 Olympics opening ceremony. Cable rose by another 32 pips, while Guppy took a 73-pip hike. Booyah!

No data was released from the U.K. last Friday, but currency traders continued to buy high-yielding currencies like the pound when Merkel, Hollande, and even German Finance Minister Schauble joined forces with Mario Draghi and hinted that they will do everything to support the euro. Talk about teamwork!

And then there were rumors that the ECB’s Securities Markets Programme (SMP) will be combined with the EFSF to bring Spanish and Italian bond yields down. Though details are still being hashed out, the possibility that the ECB will take a more active role in supporting peripheral economies boosted risk appetite in markets.

Will the good vibes last this week? The 2012 Olympics host is in for a parade of economic reports today, starting with the net individual lending and mortgage approvals data at 8:30 am GMT, followed by the CBI realized sales at 10:00 am GMT.

Then, the GfK consumer confidence report is scheduled to come last at 11:01 pm GMT. The reports are expected to come in a bit weaker than their previous figures, but make sure you keep an eye out for any surprises!

[PipDiddy]

Down she goes! The pound traded lower against most of its counterparts yesterday following the release of worse than expected data from the U.K. GBP/USD dipped to an intraday low of 1.5673 before ending the day 17 pips below its opening price at 1.5711. Meanwhile, GBP/JPY finished with a 60-pip loss for the day at 122.84.

There were a few economic reports from the U.K. yesterday. Sadly for the pound bulls, all of them fell short of expectations.

The BOE reported that net lending to individuals only amounted to 300 million GBP in July when analysts were expecting it to be around 800 million GBP for the month. On top of that, the CBI's report on consumer spending for the current month also came in lower than forecasts. The realized sales index printed at 11 versus the 17 consensus.

Lastly, the GfK consumer confidence index showed a more dire level of optimism among British consumers. The figure for July was at -29 and disappointed the market's forecast at -28.

Our forex calendar doesn't list any top-tier data from the U.K today. Hmmm, I guess everyone o'er there is busy watching the Olympics. If you're looking to trade the pound, make sure you keep tabs on market sentiment as the market's mood will probably continue to dictate the currency's price action. Remember that risk appetite is usually good for higher-yielding currencies (including the pound!) while risk aversion usually sends them lower on the charts. Good luck!

[PipDiddy]

Unfortunately, Tuesday turned out to be “one of those days” for Cable. The pair marked its second consecutive day of decline due to the increasing negative economic outlook ahead of the Bank of England (BOE)’s interest rate decision later in the week. Cable closed the day at 1.5679, 32 pips lower from its opening price during the Asian trading session.

No major economic reports were released yesterday but today there are two important events lined up.

First is publication of the Nationwide House Price Index. It measures the average change in the selling prices of houses with mortgages backed by Nationwide. It’s expected to print a 0.1% decline for this month after it had shown a 0.6% decrease in June.

The second one is the Manufacturing Purchasing Managers’ Index. It’s anticipated to print a reading of 48.6, exactly like the reading seen the previous month. Keep a close eye on the result, as the report usually has a significant impact on the pound’s price action.

[PipDiddy]

Blimey! The pound scored its third consecutive loss against the dollar and the yen yesterday. GBP/USD dropped from its opening price of 1.5679 to close at 1.5541. Meanwhile, GBP/JPY finished the day 53 pips below its opening price at 121.96.

What caused the pound's demise this time around?

I'm willing to bet that the U.K. manufacturing PMI report for July had to do with the currency's slide. The figure came in at 45.4, translating to the fastest pace of contraction in three years as it follows June's 48.4 reading. It also disappointed forecasts as analysts had only predicted a more moderate pullback to 48.6.

Of course, it also didn't help that the Fed didn't introduce any easing measures and they didn't sound as dovish as many market participants had anticipated.

Today is sure to be another action-packed day for the pound with our forex calendar listing a couple of top-tier events from the U.K.

We kick things off at 8:30 am GMT with the construction PMI for July. A reading of 48.2 is expected, matching June's figure.

Then at 11:00 am GMT, the BOE will take center stage for its interest rate decision. Keep in mind that the central bank just increased asset purchases last month. And so, almost everyone is expecting BOE Governor Mervyn King and his crew to sit on the sidelines this time around.

Be on your toes for remarks from the central bankers though. If they sound more dovish about future monetary policy, we could see the pound extend its losses!

[PipDiddy]

The pound found itself backed into a corner yesterday as both the BOE and the ECB interest rate decisions disappointed market participants. By the end of the U.S. trading session, the currency gave up 30 pips to the safe haven dollar and 64 pips to the low-yielding yen.

As widely expected, the Bank of England (BOE) decided to keep the benchmark interest rate at a record low of 0.5% and the asset purchase facility unchanged at 375 billion GBP. According to the central bank, the decision was to support the ailing economy and make sure that it is able to meet its inflation target over the medium term.

There was some good news though. The Construction PMI, which was initially expected to print a reading of 48.2, came in better than expected and was able to go above the 50 level that divides contraction from growth. It showed a reading of 50.2, indicating that the construction industry is poised to expand.

Today, prepare yourself for the Services PMI at 8:30 am GMT. It’s projected to increase to 51.6 from last month’s 51.3. If the actual figure fails to meet forecast, we could see the pound sell off for the third straight day.

[PipDiddy]

Weak economic data? No problem! The pound took a breather from its losses last Friday when it gained 133 pips on the Greenback and 160 pips on the yen. The question is, can the pound bulls sustain the rally?

Aside from an overall improvement in risk appetite, the pound bulls don’t really have much to go on with. After all, the U.K. did print a 19-month low services PMI data last Friday, which is a gloomy enough picture even without the three-year low manufacturing PMI and the sluggish construction growth that we saw a couple of days ago.

So unless the markets are in the mood to trade reports and speeches from the euro zone and the U.S., then you better keep an eye out for the Halifax house price index coming up at 7:00 am GMT, followed by the BRC retail sales data at 11:00 pm GMT.

Word on the hood is that both reports are slated to come in weaker than their previous readings, but make sure you’re ready with your trade plans in case there are any surprises!

[PipDiddy]

Cable began the week on a weak note as a report showed that house prices fell more than expected. GBP/USD started the Asian session at 1.5615, fell as low as 1.5546, and then closed the day near its open price at 1.5605.

The Halifax House Price Index that was released yesterday showed that the average selling price of homes dropped by 0.6%. Analysts only predicted a 0.5% decrease after the previous month’s 0.8% gain.

The U.K. is set to release its Manufacturing Production report at 8:30 am GMT today and this report is predicted to show a 4.0% decline. Given how jittery the market has been yesterday, a worse-than-expected figure could result in another sell-off in the pound. Stay on your toes folks!