Daily Economic Commentary: United Kingdom

[PipDiddy]

Hang in there, brothas! Thanks to better-than-expected U.K. data, the pound was able to score gains against its major counterparts. Cable rose by 27 pips, Guppy inched 87 pips higher, and EUR/GBP fell by 13 pips. What reports made the bulls giddy?

The manufacturing production report definitely factored in the pound bulls’ party when it showed only a 2.9% decline for the month of June. If you remember, market players were expecting a decline of 4.0%. The industrial production data also exceeded expectations with only a 2.5% downtick against predictions of a 3.3% decline in June. Last but not the least, the NIESR put its GDP estimates at -0.2% in July, which is an improvement from its -0.7% reading in June.

Today only the BOE inflation report at 9:30 am GMT is scheduled for release. Though major central banks are deciding to keep their interest rates and stimulus projects steady this month, it might be a good idea to see the BOE’s inflation projections. After all, we never know when the BOE might cut its interest rates next!

[PipDiddy]

Make that two in a row! GBP/USD ended the day in the green as it closed 21 pips up from its 1.5632 open price. GBP/JPY, on the other hand, logged in a tiny loss as it closed 12 pips down from its 122.92 open price. What's up with that?

Although the U.K. didn't release any economic data yesterday, pound pairs were rocked by BOE Governor Mervyn King's speech as the central bank head talked about the chances of an interest rate cut. Apparently, King believes that a rate cut could turn out to be counterproductive for the U.K. economy as it could result in huge losses for banks and financial institutions. This announcement allowed the pound to gain ground against its counterparts during the London session as traders wiped out any rate cut speculations from the BOE.

The BOE inflation report painted a different picture. Data revealed that the U.K. economy was still in dire need of further stimulus as inflation was projected to remain below target for the next couple of years.

There are no major reports due from the U.K. today, leaving traders to mull over the longer-term impact of King's recent statement on the U.K. economy and on the British pound. Only the trade balance and CB leading index are due starting 8:30 am GMT today. The trade deficit is estimated to widen from 8.4 billion GBP to 8.5 billion GBP while the CB leading index could post another drop for June following the 0.8% decline seen last May.

[PipDiddy]

Another day of consolidation for the pound, as it practically stayed within its average daily range versus the yen and the dollar. Will we see more of the same today or could we finally see an extended move?

The only data released from the U.K. yesterday was trade balance figures, which unfortunately, printed slightly worse than expected. The trade deficit checked in at 10.1 billion GBP, which was bigger than the anticipated 8.5 billion GBP deficit. This could mean that U.K. goods are relatively expensive and that they can’t compete in price wars on a global scale.

For today, we’ve got more inflation data headed our way via the producer price index. The old chaps over at London are saying that producers paid 1.4% more for their raw materials last month. Keep in mind that producers normally pass on any additional costs to consumers, so this is a good gauge of inflation.

I’d pay close attention to this figure, because if it comes in lower than expected and indicates that inflation remains subdued, it could give the Bank of England reason to cut rates down the road, which would only mean weakness for the pound.

[PipDiddy]

The pound was off to a weak start on Friday but it pulled up for a strong finish as it managed to end the week mostly in the green. GBP/USD closed at 1.5683 while GBP/JPY chalked up a tiny loss as it ended at 122.74.

Data from the U.K. did not disappoint last Friday as the PPI input for July came in at 1.3% while the PPI output stayed flat during the month. However, the June figures were revised down to show a 2.9% drop in PPI input and a 0.6% decline in PPI output, both of which suggest subdued inflationary pressures in the near term.

There are no reports due from the U.K. for today as Brits are probably resting after all those London Olympics festivities. Tomorrow, the U.K. will release its annual CPI figure which is expected to come in at 2.3%. Claimant count change and MPC meeting minutes are due Wednesday while the U.K. retail sales figure is set for release on Thursday.

With all these red flags on the U.K.'s schedule, this week should be a really exciting one for the pound pairs. Make sure you do your research before trading GBP/USD and GBP/JPY this week, all right?

[PipDiddy]

The pound both dealt and took damage yesterday as it gained ground against the dollar but weakened against the euro. What'll happen to it now that the Olympics are over?

It was a pretty uneventful day for the pound yesterday as it had no real motivation to bust a move. The day's lone release, the RICS house price balance report, didn't earn so much as a yawn from the markets as it printed a reading of -24% versus the forecasted reading of -23%.

But worry not, my forex homies, because today, we've got a potential market-shaker on our hands! The U.K. is scheduled to publish its monthly CPI report in the London session, which most believe will show a 2.3% increase in prices, down from 2.4% in June. Meanwhile, the core CPI is expected to remain unchanged and print a reading of 2.1%.

An downside surprise from this report would give the BOE more room to easy policy and could result in a pound sell-off, so don't you dare miss this release at 8:30 am GMT!

[PipDiddy]

Chop, chop, chop! GBP/USD made a few spikes here and there but managed to end right where it started at 1.5685. GBP/JPY, on the other hand, was able to pocket some gains as it closed at 123.49. Which reports moved the pound pairs yesterday?

U.K. inflation surprised to the upside for July, breaking its streak of declines and weaker than expected results. Annual CPI jumped from 2.4% to 2.6% during the month instead of falling to 2.3% while the retail price index rose from 2.8% to 3.2% in the same period. Components of the data revealed that the increase in price levels was spurred by a sharp rise in clothing, airfare, and footwear in the weeks leading up to the London Summer Olympics. However, since house prices weren't really affected by the Olympic games, the house price index missed expectations of a 2.7% rise and came in at only 2.3%.

These stronger than expected inflation figures gave pound pairs a boost during the U.K. session, but GBP/USD's gains were quickly erased once the U.S. session rolled along. As it turns out, Uncle Sam printed better than expected retail sales data which triggered dollar-buying.

Today, the U.K. is set to release another set of top-tier data, namely its claimant count change figure and MPC meeting minutes at 8:30 am GMT. The number of people claiming unemployment benefits is expected to tick up from 6.1K in June to 6.2K in July, reflecting a slight downturn in the U.K. labor market. This could be negative for the pound unless the actual figure posts a smaller than expected increase in claimants.

Meanwhile, the MPC meeting minutes are expected to reveal a unanimous 0-0-9 decision when it came to the BOE's announcement to keep rates on hold during their previous policy statement. Make sure you also take a look at what each of the committee members had to say during their meeting since this could set the tone for their future policy decisions.

Quite a busy day for the U.K., eh? Be extra careful when trading those pound pairs today!

[PipDiddy]

While the pound's battle against the dollar was limited to a draw, it managed to steal a few pips away from the yen. GBP/USD formed another doji as it ended unchanged at 1.5684, but GBP/JPY inched up 21 pips to 123.70. Will today's retail sales report spur a pound rally?

Instead of printing an increase of 6,200, jobless claims actually DROPPED by 5,900 last month! Apparently, the job market fared so well last month that the unemployment rate ticked down from 8.1% to 8.0%. Many believe hiring picked up because of the Olympics. But if that really was the case, y'all gotta wonder if the U.K. can keep this up now that the games are over.

In other news, the MPC meeting minutes delivered another surprise to the markets - that policymakers actually agreed to something! According to the minutes, MPC members voted unanimously to keep monetary policy unchanged in its rate decision earlier this month. It also showed that there were some members that were tempted by the idea of more stimulus, as the BOE predicts the economy will contract by 0.2% this year.

Today, we've got another hot report coming out in the London session, this time in the form of the July retail sales report. Did the Olympics help boost consumer spending or did it bog it down? Forecasts see sales growth slowing from 0.1% to 0.0%. We'll find out just how accurate these predictions are at 8:30 am GMT!

[PipDiddy]

Do they release Olympic Gold medals for solid forex performance? Because the pound absolutely killed it against the dollar and yen in yesterday’s trading games! GBP/USD rose 54 pips to finish at 1.5737 and is now testing a major resistance point. Meanwhile, GBP/JPY soared to 124.81, up 111 pips from its opening price!

The pound’s domination can be attributed to one thing: solid retail sales data. Retail sales growth was projected to come in flat last month, but expectedly printed a 0.3% uptick. Furthermore, June’s figure was revised up from 0.1% to a smashing 0.8%! Boom baby! Talk about a feel good story!

This indicates that consumer spending could be on the rise and we could see the British economy turn it around soon.

No biggies lined up for the U.K. today, so chances are we won’t see GBP/USD break through the long-term resistance level. Still, make sure you check out my U.S. commentary for the 411 on what might drive trading during today’s New York session!

[PipDiddy]

Where to, pound traders? Though the U.K.’s currency traded higher against the yen, it also pared its gains against the Greenback, the euro, and the franc. There weren’t any reports released, so what had caused the move?

Between the lack of volume and market-moving reports from the major economies, it was easy for the pound bulls to take profit ahead of the weekend.

Don’t worry, you’ll soon get your fix of U.K. data this week when the Rightmove house price index is released in a couple of hours. Then, on Tuesday at 8:30 am GMT we’ll see the public sector borrowing, which will be followed up by the BBA mortgage approvals data on Thursday also at 8:30 am GMT and the revised U.K. GDP on Friday around the same time.

Will the pound traders remember the solid retail sales data last Thursday, or will they dance to the tune of risk appetite today? Be on your toes for any game-changing reports, kids!

[PipDiddy]

Sellers were in control of GBP/USD for most of the day, but before the New York session came to a close, buyers were able to stage a rally that took the pair back to its opening price. When all was said and done, Cable closed 5 pips higher at 1.5610.

The release of the Rightmove house price index might've had a hand in the pound's slow start as it showed a 2.4% decline in house prices, which is even worse than the 1.7% slide that we saw last month. Take note, homies, this was actually the biggest drop EVER recorded by the Rightmove index!

Now, let's see if today's releases can give pound bulls something to cheer about.

At 8:30 am GMT, the U.K. will be unloading its public sector net borrowing report, and forecasts say we'll likely see net borrowing slip from 12.1 billion GBP to -2.7 billion GBP. Then at 10:00 am GMT, CBI industrial order expectations data will be available. Look for the index to slip from -6 to -8 for the month of August.