Daily Economic Commentary: United Kingdom

Aaaand the pound is back in action! After consolidating for almost a couple of days, pound pairs broke out of their ranges and made strong moves yesterday. GBP/USD tumbled from its 1.5639 open price to close at 1.5517 while GBP/JPY managed to end 2 pips above the 120.00 handle.

The BOE’s latest monetary policy meeting minutes revealed that the MPC members were unanimous in their decision to keep asset purchases unchanged during their November statement. They did point out that the worsening euro zone debt crisis poses a huge threat to the British economy, but that there wasn’t enough reason to implement another round of easing just yet. The minutes also showed that the policymakers expect inflation to fall below the central bank’s 2% target next year.

BBA mortgage approvals came in better than expected at 35.3K, higher than the estimated 32.3K increase and the previous month’s 33.5K figure. In fact, the October report showed that mortgage approvals are at their highest levels since May last year.

However, these upbeat reports weren’t enough to boost the pound in yesterday’s trading as news of the German bond auctions took the spotlight. You should definitely drop by my euro zone economic commentary to get the scoop on that!

The U.K. is set to release its revised GDP figure for the third quarter of this year, and there are no revisions expected for the 0.5% growth figure. Watch out for the actual release at 9:30 am GMT because a significant upward revision could give the pound the boost it needs. Also keep an eye out for the business investment report, which could show a 0.5% drop in investment for Q3 2011.

Later on, at 12:00 pm GMT, the U.K. will report its CB industrial order expectations for this month. The index is expected to dip from -18 to -19, reflecting lower volume expectations. A higher than expected figure could be positive for the pound while a weaker reading could force pound pairs to extend their losses.

The pound produced another terrible performance for the pound yesterday as it posted a new low versus the dollar. GBP/USD ended the U.S. trading session at 1.5498, 19 pips lower from the price level it started that day. Yesterday marked the fourth straight losing day for the currency and it looks like it will continue on going down.

Even though the U.S. markets were closed for Thanksgiving Holiday, the pound still found a reason to fall due to weak economic data. The preliminary business investment report came in weaker than expected as it showed a 1.4% decline, almost triple the expected decrease. Meanwhile, the second release of the third quarter GDP report confirmed the 0.5% growth the preliminary report initially showed.

Today, the economic cupboard the U.K.'s economic cupboard presents nothing of interest so don’t expect the pound to exhibit as much volatility as yesterday. Still do be careful of retracements though… It is a Friday and traders could start taking profit as they close shop for the weekend!

GBP/USD ended the week on a sour note as it chalked up another set of losses last Friday. GBP/JPY, on the other hand, managed to end Friday in the green as it closed 66 pips up from its 119.47 open price. What’s in store for the pound pairs this week?

There weren’t any economic reports released from the U.K. last Friday but several debt rating downgrades in the euro zone weighed on risk sentiment. This week, the pound could have a chance to recover if its economic data comes in stronger than expected.

To start off, the BOE is set to release the inflation report hearings at 3:00 pm GMT today. Since this report would contain the monetary policy committee members’ varying views on inflation, it could provide some clues on the central bank’s next monetary policy moves. Downbeat comments could drag pound pairs down so make sure you keep close tabs on what the MPC members have to say!

On Tuesday, the U.K. will release the Nationwide HPI, which is expected to show a 0.1% drop in house prices for November. A weaker than expected figure could erase part of the 0.4% increase seen last October, so stay tuned for the actual release at 7:00 am GMT. The Halifax HPI, which came in at 1.2% last October, is also due sometime this week.

The manufacturing PMI and construction PMI are due on Thursday and Friday respectively. Both reports are expected to print declines over the previous month’s figures and, if that’s exactly what we see, the pound could be in for another set of declines as well.

With risk appetite back up, the pound was able to overcome weak sales data and dovish words from central bank officials to end the day higher against its safe haven counterparts. Cable finished 25 pips higher at 1.5504 while Guppy rose 81 pips to close at 120.87.

Phew! The pound sure is lucky that traders were in a risk-taking mood yesterday! It could’ve ended the day much, much lower considering the feedback we got on the economy. First off, the CBI realized sales index dropped from -11 to -19 this month. Not only is that figure far worse than the -12 that economists had predicted, but it also marks the index’s biggest drop in two years!

Sadly, retailers are expecting gloomy days ahead, even with the holidays just around the corner. Word on the street is that they believe spending will decline another 6% next month! What a bummer!

After that downbeat report was released, some BOE officials added to the pessimism, saying that we’ll likely see flat growth in the coming months and that the central bank has good reason to ease its monetary policyfurther. Hmm… I’m beginning to think that the BOE may add more stimulus as soon as next month!

Today at 7:00 am GMT, we’ll begin the day with the Nationwide HPI report, which is due to show a 0.1% decline in house prices after it printed a 0.4% increase last month. After that, we’ll take a look at net lending to individuals data, which is expected to stay flat at 1.0 billion GBP. Last but not least, we’ll have the autumn forecast statement on tap at 12:00 pm GMT. Should these reports print more negative feedback on the U.K. economy, the pound could end up taking a hit!

Score another one for the pound! It followed up its gains on Monday with another awesome performance as GBP/USD climbed 106 pips to finish the day just above the 1.5600 handle. Can the pound make it three in a row today?

It seems that traders couldn’t get enough of the pound after the U.K. published a few upbeat reports, the first of which was the U.K. Nationwide HPI. Despite the fact that the outlook for the economy has deteriorated in recent weeks, house prices were surprisingly resilient this month as the index showed a 0.4% increase instead of a 0.1% decline as many had anticipated.

This figure, which translates to a 1.6% increase year-on-year, is a pretty decent follow-up to last month’s 0.4% increase. Good news, right? Well, not entirely. Housing experts say that the rise in prices was brought about by a lack of supply rather than a strong demand.

Net lending to individuals also picked up nicely in October as lending increased by 1.3 billion GBP. Thanks in part to a big jump in the number of loan approvals for house purchases, actual net lending to individuals was able to outperform expectations by 300 million GBP.

In other news, the Office for Budget Responsibility (OBR) declared that the government is still on track to meet its financial targets for the year. But on the downside, it sees domestic demand weakening in the near future. It’s for this reason that the OBR downgraded its growth forecasts. It revised its 2011 forecast down from 1.7% to 0.9%, while cutting its 2012 forecast from 2.5% to just 0.7%. With such a bleak outlook for the economy, it’s no wonder that many market junkies are expecting more quantitative easing in February 2012!

Just a few hours ago, we got a look at the most recent GfK consumer confidence data. Though it remained in negative territory, it did show a slight improvement from the previous month’s reading of -32. The index printed a reading of -31 for the month of November, beating forecasts by two whole points.

But so far, this hasn’t done much to reignite demand for the pound. Then again, it’s still quite early in the day. Keep watching those charts, fellas!

And that makes it three for three! Yesterday’s risk rally helped the British record its third consecutive win against the dollar as the coordinated action of central banks spurred risk taking. As a result, GBP/USD rallied to as high as 1.5780 before settling at 1.5692 for an 82-pip gain on the day.

As I had mentioned yesterday, we only had the GfK consumer confidence report to work with as far as U.K. data was concerned. Unfortunately, it didn’t really bear any good news! Though the index rose slightly from -32 to -31, the downtrend in consumer confidence remains intact.

Compared to last year, it seems our homies up in the U.K. feel much, much worse about their current personal financial situation and are more pessimistic about the economy as a whole. The only silver lining in this dark cloud is that more British consumers believe that now is a good time for a major purchase. Just in time for the holidays!

Today, we’ll deal with the U.K. manufacturing PMI which is slated to slide from 47.4 to 47.1. Catch it at 9:30 am GMT.

An hour after that, we’ll take a look at the BOE Financial Stability Report. Considering that central bank officials have been speaking quite dovishly lately, if this report surprisingly gives positive feedback on the economy, it could spark increased demand for the pound.

It was an up and down day for Lady Cable, which couldn’t sustain its winning run yesterday. GBP/USD basically stayed within range, and eventually ended the day at 1.5685, just 7 pips lower than its opening price.

One of the reasons why the pound may have been unable to post new highs is probably because of the manufacturing PMI, which indicated that manufacturing activity is slowing down. While the report printed better-than-expected at 47.6, it was also the index’s lowest reading in over two years. This highlight the weakness in the British economy, as the U.K. is suffering from poor demand from the U.S. and the euro zone.

In other news, BOE head honcho Mervyn King delivered a speech regarding the state of the British banks. While King did say that U.K. banks are better off than their European counterparts, he did say that not everything is fine and dandy. For one, U.K. banks’ exposure to Irish, Italian, and Spanish debt amounts to nearly 160 billion GBP, and there’s no telling when this will finally come to haunt them.

For today, the only red flag we have coming up is the construction PMI, which is scheduled to be released at 9:30 am GMT. Word is that the index will print at 52.1, which would be slightly lower than the previous month’s reading of 53.9. If this comes in worse than expected, it could cause the pound to take a small hit, so make sure you pay attention when this report is released.

It was a day of consolidation for the pound, as it basically stayed within its average true range versus the dollar and the yen. GBP/USD basically traded between the 1.5600 and 1.5700 handles before closing at 1.5647, up just 14 pips on the day. Meanwhile, GBP/JPY failed to make any new significant highs or lows and finish at 121.58, marking a 31-pip loss.

The pound benefited from the release of the services PMI report, which printed at 52.1 Not only was this higher than the expected (50.6), but it was also an improvement from the previous month’s release of 51.3.

Digging deeper though, the numbers aren’t as nice as you would think. The new orders, future activity, and employment components were all disappointing, and it appears that we’ll continue to see sluggish performances in 2012.

For today, we’ve got housing data on deck in the form of the Halifax housing price index, due at 8:00 am GMT. Housing prices grew by 1.2% in October, which was a nice reversal from the previous trend of declining home prices. If we see a substantial increase in today’s report, it could give the pound a nice boost and allow it to set off for new highs.

Aaah, there’s nothing like bad data to wake currency bears out of hibernation. Just ask the pound! Yesterday GBP/JPY was down 39 pips by the end of the New York session, while GBP/USD ended the day 51 pips below its opening price at 1.5596.

It was reported yesterday that consumer spending in the U.K. declined further in November. According to the BRC retail sales monitor report, same-store sales dropped by 1.6% during the month following the more modest 0.6% contraction we saw in October.

To make matters even worse for the pound, the most recent Halifax HPI showed that house prices went back to negative territory once again after printing a 1.2% uptick in October. The report showed that the price of an average home in the U.K. dropped by 0.9% in November. This must have upset pound bulls as the report is considered as a leading indicator of the housing market’s health.

With that said, be sure to be on your toes for the reports from the U.K. listed on our forex calendar today as they could determine the pound’s fate in the charts. At 9:30 am GMT, the manufacturing production report for October will be released and it is anticipated to come in at -0.1%. Along with that will be the industrial production report for the same month which is eyed at -0.3%. Then at 3:00 pm GMT, NIESR will release its GDP estimate for September to October. Watch out for a figure higher than its previous reading of 0.5% as it would probably be bullish for the pound.

There you have it boys and girls. Make sure you ain’t snoozin’ when the numbers are released later, ayt?

It looks like Forex Gump was correct in saying the pound has become the “European safe haven” currency. Even though risk appetite faded in the financial market, the pound was able to post spectacular gains against both the dollar and the euro. GBP/USD ended the day with a 109-pip gain while EUR/GBP closed 57 pips lower.

On the economic front, the manufacturing production report showed a 0.7% decline, worse than both the 0.1% decrease initially predicted and last month’s 0.1% gain. The industrial production report also shared the same story as it showed a 0.7% fall versus the 0.3% decline forecast.

Today, all eyes will be on the pound as the Bank of England (BOE) announces its decision on interest rates. The market widely expects the BOE to keep rates unchanged at 0.50% so pay attention instead to the central bank’s tone on the accompanying statement. If the BOE updates the market that their quantitative easing program is working, we could see the pound skyrocket across the board again.

The pound sank down the charts yesterday, as risk aversion weighed heavily on the markets. After consolidating for the better part of the day, GBP/USD dropped midway through the New York session and finished at 1.5635, down 71 pips on the day. Meanwhile, GBP/JPY finished at 121.49, marking a 47-pip loss.

Interestingly, the pound was largely unaffected by Bank of England interest rate decision, which resulted in no changes to its base line rate or its asset purchase program.

Instead, it was comments regarding bond purchasing by ECB President Mario Draghi that sucked the air out of the markets, allowing safe havens like the dollar and yen to rally. Make sure you check out my euro zone commentary for the juicy details on this development!

For today, we’ve got a couple reports on tap in the form of the producer price index and trade balance figures, both of which are scheduled for release at 9:30 am GMT. Producer prices are expected to have risen by 0.3% last month, which would be a complete reversal from the 0.8% decline the month before. Meanwhile, a trade deficit of 9.5 billion GBP is expected to be posted for the month of October.

Now, I’m not too sure if we’ll see a strong market reaction from these two reports, as economic reports seem to have had little effect on price action this past week. Nevertheless, it would be prudent to stay on your toes and be ready for anything!

While the European Summit was able to support risk appetite slightly, GBP/USD still failed to make any significant gain or loss and closed the day barely changed from its opening price last Friday. GBP/USD sat at the 1.5663 by the end of the U.S. trading session, just 28 pips higher from its opening price that day.

After 10 hours of talks, the European leaders managed to agree on a new fiscal pact last Friday. While it was a step in the right direction, it did not include all 27 European nations and only the 17 member nations that use the euro were involved. In addition, the ESM, the long-term bailout fund that would replace the EFSF, would be capped at the 500 billion EUR and would NOT be treated like a bank. This means that it can’t borrow from the ECB.

Economic data that came out were mixed. On the one hand, the Producer Price Index Input was only at 0.1%, slightly worse than forecast. The Trade Balance, on the other hand, showed a 7.6 billion GBP deficit, which was much better than the 9.5 billion GBP deficit initially expected.

This week, there are several important news releases that we need to watch out for. Today, the Bank of England Governor is scheduled to speak. As the head of the governing body that controls interest rates, his words will be closely listened to as he may drop hints on future monetary policy.

On Tuesday, the country’s Consumer Price Index will be published. The market expects inflation to edge lower to 4.8% from 5.0%.

Then, on Wednesday, some labor figures will be released. The Claimant Count Change is slated to report that the number of unemployed people was reduced by 17,300. Meanwhile, Average Hourly Earnings are predicted to have risen by 2.0%.

Last is the Retail Sales report on Thursday. The report is generally a market mover, so don’t miss it! The consensus is a 0.2% decline.

Look out below! No thanks to risk aversion in the markets and lack of economic data from the U.K., the pound suffered losses against its major counterparts. GBP/USD ended up closing 60 pips below its open price after dipping to an intraday low of 1.5537.

As I mentioned in my euro writeup, renewed concerns on the euro region’s debt crisis fired up the currency bears yesterday, especially after credit rating agencies Moody’s and Fitch followed the S&P’s lead and warned of more fiscal trouble ahead for the region.

Of course, it also didn’t help that research from the Bank of International Settlements (BIS) suggested that additional quantitative easing (QE) from the BoE won’t be as effective as it was in its earlier days.

You see, the BIS believes that more stimulus from the central bank won’t cut government debt as much as analysts originally estimated. Apparently, the program is subject to diminishing returns if you compare the size of the next asset purchases to the size of the overall government debt.

Let’s hope the economic data scheduled today will give the pound bulls reasons to attack! Earlier today we saw the RICS house price balance clock in only a 17% decline in house prices in November, a bit better than the expected 25% decline.

Hang on to your seats, folks, because at 9:30 am GMT today we’ll see the U.K.’s CPI figures, together with the retail price index. The CPI is expected to print below 5.0% in November, but a higher figure might suggest that the BoE’s prediction of softer inflation might take longer than the central bank expected.

For the second straight day this week, Cable found itself suffering at the hands of the bears. It was sold-off like ice cream on a hot summer afternoon, ending the U.S. trading session 112 pips lower from its opening price that day.

Cable’s move down was driven by external factors, rather than things happening in the U.K. Due to the lack of quantitative easing talk in the U.S. Federal Reserve statement yesterday, risk aversion took hold of the markets again. This boosted safe haven currencies like the dollar and drove “risky” European currencies like the pound lower across the board.

Data that came out of U.K. were mostly in line with expectations. The monthly consumer price index showed a 4.8%, just as expected. The core version of the report stood at 3.2%, just slightly lower than the 3.3% forecast.

Today, we’ll be treated to some labor data at 9:30 am GMT; namely the Claimant Count Change, the Average Hourly Earnings, and the unemployment rate. The Claimant Count Change is slated to print a 16,100 increase in the number of people claiming jobless benefits. Meanwhile, Average Hourly Earnings is predicted to show a 2.0%. The unemployment rate is expected to have risen to 8.4% from 8.3%.

Thank goodness for good economic data! Despite the selloff in high-yielding currencies yesterday, the pound was able to come out relatively unscathed against its major counterparts. Cable ended the day with a 10-pip loss after dropping to an intraday low of 1.5409, but EUR/GBP also ended up falling by 26 pips to .8396.

As I said in my EUR writeup, escalating concerns on the euro zone debt drama fueled risk aversion in the markets yesterday. Good thing the U.K. printed better-than-expected economic reports!

The jobless claims data released yesterday revealed that there was an additional 3,000 claimants in November, a bit higher than the downwardly revised 2,500 claimants in October but still a lot lower than the expected 5,300 figure.

In addition, the claimant count rate clocked in at 5.0% for the month, lower than the 5.1% growth rate than analysts were expecting. Lastly, the country’s unemployment rate measured by a three-month rolling average ending in October stagnated at 8.3%, still at its highest levels since 1996.

Will the U.K.’s economic data scheduled today be enough to shield the pound from any more losses? At 9:30 am GMT we’ll get hold of the country’s retail sales report as well as their consumer inflation expectations, followed by the CBI industrial order expectations at 11:00 am GMT.

Of course, you need to keep your eyes peeled for any news that might affect risk sentiment! Word on the hood is that the currency bears are just getting started to end the year with a bang, so make sure you keep a close eye on your pound trades!

Whew, what a relief! The pound was able to take a break from its slide against its major counterparts as it ended higher against the Greenback and Japanese yen yesterday. GBP/USD closed 47 pips up from its 1.5461 open price while GBP/JPY ended 20 pips shy of the 121.00 handle.

Economic data from the U.K. came in weaker than expected, with retail sales posting a 0.4% decline for November. This was a tad below the consensus of a 0.3% drop, but the good news is that the October figure was revised upwards to show a 1.0% increase.

The CBI industrial orders expectations report also turned out to be a disappointment as the reading dipped from -19 to -23 for this month. This means that manufacturers are projecting a decrease in order volumes for the month, as the index dipped to its lowest level since October 2010.

Despite those poor figures from the U.K., the pound was able to enjoy a nice rally as risk appetite returned to the markets yesterday. It seems that traders are no longer so fearful now that there hasn’t been any bad news from the euro zone lately!

There aren’t any reports due from the U.K. today so make sure you get a good grasp of market sentiment to figure out whether the pound could sustain its recent rally or not.

With no economic data from the U.K., it was up to the currency bulls and bears to battle with both risk aversion in the markets and the positive economic reports from the U.S. Cable ended up rising by 13 pips from its open price, while GBP/JPY capped the day with a near doji at 120.75.

Downgrade concerns on the euro zone kept a lid on risk appetite for most of the day, so the high-yielding pound showed mixed price action against its counterparts.

Will the pound bulls and bears battle it out again today, or will one camp emerge victorious? Yesterday the Rightmove house price index showed a 2.7% decline in December against the 3.1% fall in November, which suggested that house prices are declining at a slower rate.

Meanwhile, a quarterly bulletin from the BOE showed the central bank’s belief that the GDP will rise a bit on cheap pound and a rise in domestic tourism. The central bank believes that the decline in purchasing power will help boost exports and encourage “staycations” among the Britons.

No other major reports are scheduled for release today, but make sure you keep an eye out for any news event that might affect risk sentiment!

Ho hum… It was another day of ranging for GBP/USD as the pair paced back and forth between support around 1.5475 and resistance at 1.5550. GBP/JPY was also stuck in consolidation as it bounced from 120.50 and stayed below 121.00. Will the sideways price action continue today?

The U.K. didn’t release any top-tier reports yesterday, which was probably why pound pairs simply cruised across the charts. Just a few hours ago, the Nationwide consumer confidence figure was released and it came in better than expected. The index climbed from 36 to 40 in November instead of dipping to 34, showing an improvement in consumer sentiment for the month.

The CBI realized sales report is set for release at 11:00 pm GMT later. This could show that sales are still decreasing, but at a slower pace, as the index could climb from -19 to -14 for November. Keep an eye out for this report in case the actual figure comes in better or worse than expected because it could push the pound in either direction.

Yowza! Did you see the pound bust a move yesterday? It marched up the charts like a boss! Taking full advantage of yesterday’s risk rally, it managed to gain 165 pips against the dollar while recording a 102-pip win versus the yen. Let’s see if it has enough momentum to continue climbing!

With help from a couple of better-than-expected reports, the pound was able to make it to the top of the hill.

First, the Nationwide consumer confidence index exceeded expectations when it printed a reading of 40 rather than the 36 that many were anticipating. But although these results were better-than-expected, the details of the report were a bit alarming as they showed that consumer confidence was close to forging a record low last month. Many Britons feel bummed out about the European debt crisis, which only means that its effects have already spilled over to the U.K.

After that, the CBI realized sales report showed a nice improvement in December as it rose from -19 to 9 (versus -14 forecasts). Considering the sharp fall we saw in November, this bit of news came as a breath of fresh air. One of the main reasons why sales picked up was because of pre-Christmas discounting by
retailers. It seems they can’t resist sales in the U.K… Huck would fit in nicely there! Haha!

Today, the U.K. will be rolling out its big guns. It already fired the first salvo with the GfK consumer confidence report. Unfortunately, it didn’t give positive feedback as the index declined from -31 to -33, instead of staying flat as expected. But so far, the report doesn’t seem to be affecting demand for the pound.

Then again, maybe that’s because everyone’s waiting for the MPC meeting minutes to come out! What was said in the last meeting? We’ll find out at 9:30 am GMT! At the same time, we’ll take a look at U.K. public sector net borrowing data, which is expected to show that the U.K.'s budget deficit grew from 3.4 billion GBP to 15.5 billion GBP. Yikes! For a country that’s supposedly trying to slash its deficit, a big number isn’t what you want to see from this report.

The pound sure has some wild moves up its sleeve! GBP/USD spiked to a high of 1.5775 before it boogied down to close at 1.5677, 16 pips up from its 1.5661 open price. GBP/JPY topped at 122.60 then ended the day at 122.41.

Strong risk appetite from the other day carried on and lifted the pound against its major counterparts during the latter half of yesterday’s Asian session. However, the pound erased some of its intraday gains when the BOE revealed that they are open to further easing in February, even though the MPC meeting minutes showed that policymakers voted unanimously to keep their monetary policy unchanged for the time being.

Meanwhile, the U.K.'s public sector net borrowing data came in line with expectations at 15.2 billion GBP for November. Aside from that, the October figure was revised from 3.4 billion GBP to 3.0 billion GBP, reflecting a smaller budget deficit.

Today, the U.K. is set to release its current account balance for November, which is expected to show a deficit of 5.6 billion GBP. The final GDP for the third quarter of 2011 is also due today and could stay at 0.5%. Weaker than expected figures or any significant downward revisions would confirm the BOE’s hunch that the U.K. economy could remain on shaky ground, which would be bearish for the pound. Keep an eye out for those reports due 10:30 am GMT!