Daily Economic Commentary: United Kingdom

[PipDiddy]

Oh snap! The pound just skyrocketed to its three-month high against the dollar despite disappointing data! After opening at 1.5710, GBP/USD traded higher all the way up to 1.5804 before closing the day at 1.5776.

Yesterday, it was reported that the U.K.'s public sector net borrowing incurred a 1.8 billion GBP deficit in July. The figure fell short of market expectations as market junkies anticipated a more modest deficit of 2.7 billion GBP to follow the 12.2 billion GBP surplus that we saw for June.

On top of that, the CBI industrial order expectations report also printed much lower than the -8 forecast for August when it printed at -21.

So what fueled the pound?

It was none other than the ECB. It looks like rumors about the central bank putting a cap on bond yields of peripheral EZ nations spurred investors' appetite for risk.

Given that and taking into consideration that our forex calendar is blank for reports from the U.K. today, it would be a good idea to keep an ear out for updates regarding the issue as it could once again affect the pound's fate in today's trading.

[PipDiddy]

Mixed results for the pound yesterday, as it soared higher versus the dollar but got lit up by the yen. GBP/USD broke out of its recent range to finish at 1.5867, 91 pips higher on the day. Meanwhile, GBP/JPY threated to make new highs above 125.50, but lost momentum and eventually finished at 124.62, down 39 pips from its opening price.

Despite the lack of data, the pound was able to rally against the dollar for two reasons: a broad improvement in risk sentiment and overall dollar weakness. Make sure you check out my U.S. commentary for the 411 on why the dollar sank yesterday!

For today, all we’ve got is second tier data in the form of BBA mortgage approvals and the CBI realized sales report.

At 8:30 am GMT, the British Bankers Association will be releasing the latest mortgage approvals figures. Word on the street is that 28,200 mortgages were approved last month, which would mark a decent improvement over the 26,300 approvals we saw last month.

Later on at 10:00 am GMT, the CBI realized sales index is projected to print at 16, up from the 11 we saw in July. Keep in mind that the last few release have been way off target, so don’t be surprised if we see the same today.

If both these reports come in better than expected, it could help the good times roll for the pound. Watch out!

[PipDiddy]

After racing up the charts like a Ferrari in Wednesday's trading, it looks like the pound ran out of fuel on the charts yesterday. GBP/USD rallied above 1.5900 but didn't find enough demand at the major psychological handle. By the end of the New York session, the pair was 7 pips below its opening price at 1.5860.

It would seem that some traders pared their short-dollar positions in yesterday's trading. Unfortunately for the pound, mixed data rolled out of the U.K. and gave investors little reason to buy it.

The CBI Realized Sales index for August printed at -3 and fell waaay off expectations. Market junkies had expected an improvement in sales for the month with the forecast up at 16 from July's 11 reading.

On a more positive note though, BBA mortgage approvals rose in July by 28,400 and topped the consensus by 200.

But don't fret! Today we have a couple of top-tier data from the U.K. which may just boost the pound. Well, that is, if they come in better than expected.

At 8:30 am GMT, the revised GDP report for Q2 2012 will be on tap. Keep in mind that an upward revision is expected, with the forecast up at -0.5% from the initial reading of -0.7%.

Along with that, the preliminary business investment report for the same quarter will also be released and it is eyed at 2.8%.

Make sure you're on your toes for them later, ayt? Peace out, folks!

[PipDiddy]

After its impressive performance during the first half of the week, Cable fell considerably short last Friday. From its day open price at 1.5860, it fell 56 pips lower to end the U.S. trading session at 1.5805. What caused the declined?

Cable’s drop was caused by a mix of external and internal events. A report from the U.S. showed that durable goods orders rose by a whopping 4.2% in July, almost double the 2.6% the market had initially expected.

In the U.K., the preliminary business investment report showed a 0.1% decrease for the second quarter of 2012 while the revised GDP report confirmed that U.K. did indeed shrink 0.5%.

A lot of medium-tier economic data scheduled for release this week starting with the Nationwide HPI tomorrow. On Thursday, expect to see the Net Lending to Individuals and Mortgage Approvals Report. On Friday, watch out for the Gfk Consumer Confidence survey. And last by not the least, the annual Jackson Hole Symposium will happen on Saturday. This isn’t a U.K.-exclusive event, but it could still indirectly have an effect on Cable’s price action.

[PipDiddy]

Where are all the pound bulls at? The currency sustained another loss against the dollar yesterday. GBP/USD closed the day 22 pips below its opening price at 1.5793. That extends the pound's losing streak to three days!

There wasn't any economy data released from the U.K. yesterday as banks closed for the Summer Bank Holiday. It would seem that that left the pound vulnerable to market sentiment.

Our forex calendar is once again blank for reports for the currency today. This probably means that we'll see the pound's price action be dictated by the market's mood. So if you're looking to trade the pair, keep an ear out for news that could spark risk aversion or risk appetite.

For instance, earlier today in the Tokyo session, we saw the pound spike down against the dollar and the yen. Some market junkies say that the move was caused by bad news about Japan's economic outlook getting downgraded and that new home sales in Australia fell in July.

Be on your toes, ayt? Good luck!

[PipDiddy]

The pound's price action yesterday was as mixed as a bag of nuts. While it was able to rally versus the safe haven dollar after an extremely disappointing CB Consumer Confidence survey, the pound fell was sold-off against the euro after the successful Spanish debt auction. The pound marked a 31-pip gain over the dollar but also posted a 28-pip loss versus the euro.

The CB Consumer Confidence survey from the U.S. came in at 60.6, significantly lower than the 65.8 reading initially expected. The disappointing figure stoked speculation that Bernanke would finally confirm more QE at the upcoming Jackson Hole on Friday.

No major economic report scheduled this Wednesday for the U.K. but there more tier 1 report from the U.S. that could have a strong effect on the pound. I’m talking about the U.S. preliminary GDP report which will be released at 12:30 pm GMT. If the preliminary GDP misses forecast again, the pound could stage another rally versus the dollar.

[PipDiddy]

Let’s all give the pound a pat on the back for dominating its counterparts despite the lack of economic data from the U.K.! Cable inched 7 pips higher at 1.5831, while Guppy also enjoyed a 33-pip gain. Even EUR/GBP fell by 27 pips! What gives?

No data was released from the U.K. yesterday, so the pound might have profited from traders returning from their holiday early this week. Then again, it could also have been boosted by reports that the government officials are cooking up new plans to pull the country out of a recession.

Maybe we’ll see more volatility today at 8:30 am GMT when the net individual lending report is released together with the mortgage approvals and money supply report. Then, at 11:01 pm GMT we’ll also see the GfK consumer confidence data. The reports are generally expected to come in higher than their previous figures, but make sure your trade setups can handle a surprise or two from these reports!

[PipDiddy]

After consolidating for the majority of the European trading session, Cable was hit by a wave of selling due to risk aversion during the U.S. session. The pair fell to a new 2-day low as it dropped below the 1.5800 handle.

According to numerous news reports, risk aversion was caused by renewed concerns of slowing global growth. In the U.S., the unemployment claims, the Core PCE Price Index, and the Personal Spending were all worse than expected.

In the U.K., data was more positive. The Net Lending to Individuals came in line with forecast at 900 million GBP, opposite the -100 million GBP seen the previous month. Mortgage Approvals were also as expected at 47,000.

The Nationwide HPI is the only report scheduled to be released today. It will come out at 6:00 am GMT (or 7:00 am considering DST adjustments) and is predicted to show a 0.1% gain. The report doesn’t normally have a notable effect on price action, but keep an eye on the report nonetheless just in case it does.

[PipDiddy]

What a way to end the week! Thanks to a positive U.K. report and hopes for QE3 from the Fed, Cable capped the week near its previous week’s highs while Guppy caught a 12-pip gain. Will the bulls extend their gains this week?

Even before Big Ben hinted at QE3 in his speech in the Jackson Hole meeting, the currency warriors were already busy buying the pound as the Nationwide house price index showed a 1.3% gain in August after falling by 0.8% in July.

Will the U.K. data this week continue to motivate the pound bulls? The U.K. will start the week with manufacturing PMI report at 8:30 am GMT, followed by the BRC retail sales monitor at 11:01 pm GMT. Both reports are expected to come in a bit stronger than their previous numbers, but be ready for a few surprises!

If you don’t feel like trading today, you can always trade the other major reports on the docket this week. This includes the services and construction PMI numbers, manufacturing production, PPI, and even the BOE’s interest rate decision. Check out Forex Gump’s piece on the major data this week for more information!

[PipDiddy]

Chop, chop, chop! Cable spiked here and there yesterday but managed to end in the green at 1.5890. Guppy, on the other hand, suffered a tiny loss as it closed 6 pips below its 124.44 open price.

Since U.S. traders were off enjoying their Labor Day holiday, liquidity was a tad lower during yesterday's trading, which meant that volatility was higher than usual. Because of that, GBP/USD had a choppy day in the markets before it got a strong boost from better than expected U.K. manufacturing PMI.

For the month of August, manufacturing conditions improved slightly, although the PMI still signaled a contraction. The reading climbed from 45.2 to 49.1, outpacing the consensus at 46.1.

Today, it's the construction industry's turn to release its PMI for August at 8:30 am GMT. Analysts are expecting the figure to dip from 50.9 to 50.1, reflecting a slower expansion for the month. Make sure you keep an eye out for the actual release because weaker than expected results or a reading below 50.0 could force the pound to return its recent gains.