Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
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What do you get when you mix positive services data with a lower-than-expected final GDP? Mixed results! While the British pound ended the day higher against the Greenback, it only managed to salvage draws against the euro and the yen. Will today’s rate statement lift it against its major counterparts?

Pound traders got a pleasant surprise when the services PMI rose from 51.1 to 52.9 last month, instead of falling to 50.6. The stronger-than-expected growth in the services sector comes as an excellent follow-up to the better-than-expected manufacturing data that we saw this Monday. However, the outlook for the services sector isn’t so bright as many believe the industry may go through a rough patch in the coming months. Analysts say that firms only reported increased activity because they ate into backlogs of work.

The final GDP report gave pound bears reason to celebrate as it fell below forecasts. Instead of retaining the 0.2% increase in Q2 2010, GDP growth was downgraded to just 0.1%. And you thought that tiny 0.2% growth was laughable! I’m inclined to believe that this will increase pressure for policymakers to act and provide more stimulus for the economy.

In any case, we won’t have to wait long to find out what’s on their minds! The BOE is set to make its rate statement today at 11:00 am GMT. So far, most analysts are expecting the official bank rate to stay at 0.50% and the asset purchase facility to remain at 200 billion GBP. However, there are a growing number of investors who believe the BOE may finally increase its asset purchase facility. It certainly has reason to do so. In any case, we’ll likely get a lot of action when the central bank makes its announcement, so be sure to tune in!

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Did you hear the news? The BOE announced another round of easing yesterday! Because of that, GBP/USD tumbled from a high of 1.5502 to a low of 1.5272 in just a couple of hours. However, the pair was able to pull up from its dive and finish just 10 pips below its 1.5464 open price. Meanwhile, GBP/JPY managed to keep its head above 118.00 as it closed 40 pips above that psychological level.

The BOE shocked the markets yesterday with its announcement to expand its asset purchase program by 75 billion GBP. Although the central bank still kept rates on hold at 0.5%, their decision to loosen monetary policy triggered heavy pound selling. After all, not many expected that Mervyn King and his men would take any drastic measures since data from the U.K. has been mixed lately.

BOE policymakers also noted that inflationary pressures are expected to subside and even fall below the central bank’s 2% target in the medium term. Because of that, they didn’t shy away from injecting additional liquidity to stimulate their economy.

We’ll see whether inflation is really slowing down when the U.K. prints its PPI input and output figures at 8:30 am GMT today. Producer input prices are expected to rise by 1.3% in September after dipping by 1.9% the previous month. Output prices are projected to post a 0.2% increase for September after showing a mere 0.1% uptick in August.

Don’t forget that it’s NFP Friday and we could be in for a lot of volatility in the markets. Check out my U.S. economic commentary to see what’s in store for the jobs market and the forex market as well!

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British pound, there’s hope for you yet! It seems the markets are taking the BOE’s recent move well as the demand for the pound remained strong on Friday. The buying frenzy saw GBP/USD rise 107 pips to 1.5560 just as EUR/GBP fell 100 pips to close at .8604. With the reports scheduled for release this week, we could see even bigger moves ahead for the pound!

Rather than weaken the pound, it seems the BOE’s decision to increase its asset purchase facility has sparked optimism for the economy. The central banks’ proactive gesture was made to show its determination to avoid a recession, and so far, it seems to be raising investor confidence. News that Moody’s downgraded the ratings of 12 British lenders didn’t even seem to phase the pound at all last Friday!

Also of note is how the U.K. PPI input report came above forecasts last month. Instead of showing a 1.3% increase in manufacturers’ raw materials, the report revealed a 1.7% rise. However, it doesn’t seem likely that this will translate into higher consumer inflation in the near-term. Producers may have difficulty raising the prices of their goods considering the uncertainty surrounding the U.K. economy.

This week, keep your eyes locked on the U.K. as it’s due to roll out a couple of hard-hitters. But first, it looks like we’ll have to start the week with a couple of tier 2 reports due today at 11:01 pm GMT.

The BRC retail sales report monitor, which last showed a 0.6% year-on-year decline in sales in August, is due for release. Should it print a strong figure for September, it could spark another pound rally. Similarly, the RICS house price balance report has the potential to trigger another round of pound buying if it prints above the forecasted -23% reading.

But keep in mind, the main reports to keep an eye out for are the manufacturing production and claimant count change reports. Manufacturing production data is due tomorrow at 8:30 am GMT and is slated to show a 0.1% decline. On the other hand, look for the claimant count report to show an increase of 24,400 when it comes out on Wednesday at 8:30 am GMT. Good luck, kids!

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With risk appetite in full force to start the week, the pound managed to post some nice gains versus the safe havens. GBP/USD booked a 135-pip gain to close at 1.5672, while GBP/JPY closed at 120.16, up 93 pips from its opening price.

The pound benefitted from news that French and German head honchos Sarkozy and Merkel pledged to recapitalize European banks, as many of them are severely exposed to Greek debt. This news was received warmly by the markets, as we saw risk-taking take place in all markets yesterday, despite the holidays in Japan and the U.S.

The pound’s recent rally has actually been quite impressive, given the fact that the Bank of England “shocked” the markets with more quantitative easing measures last week. The question is though, how long can this rally last?

Looking ahead, we’ve got a red flag coming up today at 8:30 am GMT, as monthly manufacturing data will be available at 8:30 am GMT. Expectations are that production dropped by 0.1% in the past month, down from the 0.1% growth we saw the month before. If we see a worse than expected figure today, it may trigger a small pound sell-off, so be careful out there!

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Unable to pick up where it left off on Monday, the British pound stumbled on the charts yesterday as dovish words and weak manufacturing data kept it from rising. Cable pretty much traded in one direction the whole day, sliding steadily from its opening price of 1.5673 to finish at 1.5615.

Yesterday’s manufacturing production data gave the manufacturing sector a thumbs down as it revealed a 0.3% decline in August. Not only is this figure worse than the 0.1% slide that markets were anticipating, but it’s also a terrible follow-up to July’s 0.2% decline. On a more positive note, industrial production rose 0.2% in the same month, which is better than the 0.2% drop that was forecasted.

I know what you’re thinking. “Why did manufacturing production drop while industrial production rose?” Many have pointed to the strong increase in non-manufacturing activities, such as oil and gas extraction, as one reason why results for manufacturing and industrial production varied.

Last but not least, according to the NIESR GDP estimate, the economy grew by 0.5% last quarter, up from 0.4% in the three-month period that ended in August. But I wouldn’t get too bullish over this report. As impressive as that 0.5% increase was, it’s still far from reaching pre-recession levels. Back in 2007, this report used to show growths of about 0.7% quite consistently!

Clearly, the U.K. economy still has a long way to go before it fully recovers. I suppose that’s why MPC member Adam Posen spoke so dovishly yesterday. Once again, the BOE dove spoke up yesterday, this time, to tell the world that the central bank is ready to add MORE stimulus to the economy if needed. And to think, the BOE just increased its asset purchase facility last week!

Up ahead, we have critical employment data on tap. The U.K. claimant count report is expected to show an increase of 24,700 in the number of jobless claims in September, up from 20,300 in August. However, this is expected to have no effect on the unemployment rate, which stands at 7.9%. You know what to do! Catch the report at 8:30 am GMT and look for the pound to weaken even further if results hint at deteriorating labor market conditions.

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Now that’s what you call a rally! Despite mixed employment figures, the pound rode a massive wave of risk appetite and set new highs versus the dollar and yen. GBP/USD rose 141 pips to finish at 1.5756, while GBP/JPY closed at 121.85, up 217 pips from its opening price.

The unemployment rate rose from 7.9% to 8.1%, bringing the number of unemployed people to its highest level since 1994. In addition, average weekly pay growth dropped slightly from a revised 2.9% to 2.8%.

The good news though was that the claimant count change report showed that only 17,500 new people filed for unemployment claims, which was much less than the projected 24,700 figure.

Still, the main driver in the markets yesterday was optimism surrounding the euro zone and its plans towards bank recapitalization. This boosted risk appetite, which helped higher yielding currencies like the pound soar up the charts.

For today, trade balance figures will be available at 8:30 am GMT. Expectations are that a deficit of 8.9 billion GBP was posted for the month of August. Normally, this data release doesn’t cause too much of a ruckus in the markets but it would be wise to tread carefully when it is released. As my momma always used to say, it’s better to be safe than sorry, as you never know how the market will react!

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And just when we all thought all hope was lost for the pound, dropping to an intraday low of 1.5666, the bulls stepped up their game and hustled GBP/USD up the charts. At the day’s close, the pair was 18 pips above its opening price at 1.5774. Whew!

Aside from the slight tinge of risk appetite left in the markets, it also helped that U.K.'s trade balance report for August showed that the country’s trade deficit narrowed from 8.2 billion GBP to 7.8 billion GBP, and topped forecasts which was for an increase to 8.8 billion GBP.

Our forex calendar is blank for economic reports from the U.K. today, so keep close tabs on market sentiment. A few market junkies warn that a few trouble spots have popped up in the euro zone and could take a toll on risk appetite (you can reads more about it in my EUR commentary). Good luck!

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Thanks to last Friday’s risk rally, the pound was able to end the week on a high note. Cable rose steadily from its opening price to forge an intraday high at 1.5850. At the end of the day, it finished at 1.5808 to record a 34-pip gain. Three in a row, baby!

We didn’t really get any reports to support the pound’s rise last Friday. It was all about risk appetite! But this week, there’s no shortage of U.K. reports to trade.

The action will begin tomorrow at 8:30 am GMT, when the U.K. CPI report is due. Look for inflation to rise from 4.5% to 4.9%.

After that, Wednesday will follow up with the MPC meeting minutes. Read what members of the BOE argued about and agreed on its last meeting when the minutes come out at 8:30 am GMT.

Then at 8:30 am GMT on Thursday, retail sales data will be available. Survey says that sales probably rose by 0.1% in September after falling 0.2% in August. If the BRC retail sales report, which showed a 0.3% rise in retail sales last week, is anything to go by, the U.K. retail sales report may just deliver an upside surprise.

Last but not least, we have public sector net borrowing data coming out on Friday. Most are expecting net borrowing to fall from 13.2 billion GBP to 11.9 billion GBP. But be ready to see some fireworks at 8:30 am GMT if actual results deviate wildly from expectations!

In the meantime, if you plan on trading the pound today, you ought to keep track of risk sentiment. If risk appetite remains healthy, the pound could extend its gains against the dollar. Good luck, kids!

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Just like all the higher-yielding currencies in the FX hood, the pound got its hiney kicked by the dollar during yesterday’s trading. On the bright side though, it only lost 79 pips loss to the dollar when GBP/USD closed at 1.5752 which is like chump change compared to the losses that the other currencies incurred.

It seems like risk aversion reared its ugly head back into the markets when German officials made investors doubt if policymakers indeed have a plan to solve the sovereign crisis. Luckily for the pound bulls, we got a bit of good news from the U.K. The Rightmove HPI for October ticked higher at 2.8% compared to the 0.7% increase we saw in September. According to officials, that’s the biggest surge in house prices that we’ve seen in two years!

The news might have boosted the pound since the increase implies that the housing industry is relatively healthy despite slowing economic growth in the country. On top of that, market junkies are saying that perhaps the positive housing report would make the BOE more hesitant in providing the economy with more easing measures as this would only spur inflation.

Oh yeah! Speaking of which, today we’ll have the CPI report for September on tap at 8:30 am GMT. Analysts are expecting to see that consumer prices are up 4.9% from a year earlier. Excluding volatile items, core inflation is seen to come in 0.1% higher than August’s reading at 3.2%.

I have a good feeling that the report will rock the pound’s socks today, so make sure you don’t miss it! Better-than-expected figures might just be enough to make the BOE less aggressive about pumping more liquidity in the economy!

599

If you’re a fan of roller coasters, then you would’ve loved the Cable’s price action yesterday. Early in the day, Cable was one of the biggest losers, falling almost 200 pips from its intraday high at 1.5823. However, the losses proved to be temporary as risk appetite during the U.S. trading session propped it up. By the end of the day, Cable sat at 1.5703, 24 pips lower from its opening price.

So, what exactly happened? Why did the pair drop like a rock at first only to rise again later in the day? The answer, young padawan, is the ever-shifting risk sentiment.

The initial wave of selling was an effect of poor economic data from China. China’s third quarter GDP figure was reported to be only 9.1%, the lowest in two years. Later, risk sentiment picked up as news came out that France and Germany have decided to boost euro zone’s rescue fund, or the EFSF, to 2 trillion EUR as part of their comprehensive plan to resolve euro zone’s debt crisis.

In other news, U.K.’s consumer price index for September was much higher than forecast. It came in at 5.2% versus the 4.9% consensus. Normally, this would’ve caused a huge rally due to interest rate hike speculation, but the recent statements from the Bank of England (BOE) have indicated that raising rates was the last thing on their minds.

Today, we’ll get some more insight to BOE’s stance on monetary policy. At 8:30 am GMT, the minutes of the BOE’s most recent interest rate meeting will come out. The market is expecting the minutes to reveal that all 9 voting members voted for no change in rates.

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Finally, some swag! The pound powered up the charts in yesterday’s trading, after dipping to an intraday low of 1.5699 against the dollar. GBP/USD then reached an intraday high of 1.5848 but closed lower at 1.5771 with a 44-pip gain. Will the pound be able to trade past resistance at the week open today?

That would probably depend on the U.K. retail sales report for September which is due later at 8:30 am GMT. The forecast is for consumer spending to have been flat during the month after contracting by 0.2% in August. However, if we see a better-than- expected figure, the pound may just extend its rally! Why? Investors would probably feel giddy about a positive report as stronger consumer demand and low interest rates could provide the British economy with a much-needed boost.

Oh! Speaking of interest rates, yesterday we saw the pound trade higher on the heels of the minutes of the most recent BOE MPC meeting. As expected, all the 9 voting members voted to expand the asset purchase program and keep rates on hold.

The pound was able to pound pips out of the dollar because although policymakers conveyed that they’re pretty skittish about the economy, the minutes didn’t really reveal anything surprising to the markets. Of course, it also helped that risk appetite was up in yesterday’s trading too. So aside from the retail sales report, be sure you also gauge market sentiment, ayt?

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Which currency pair went on a wild ride and experienced a lot of volatility yesterday? If you answered Cable, then give yourself a pat on the back! Cable’s price action turned to be very crazy one due to the varied results on economic data. GBP/USD began the day at 1.5771, followed by a rally above 1.5800, and then a crash back down below 1.5700! At the end of the day, the pair was sitting at 1.5798, just 27 pips higher from its opening price! What a trip!

U.K.'s retail sales report came in at 0.6%, which was a huge improvement from last month’s 0.4% decrease. It was also better than the 0% gain initially expected. The result helped support Cable.

Unfortunately, the uplifting sentiment did not last long as U.S. data came in mixed. The existing home sales came in worse than expected while the Philly Fed Index finally rose to the positive territory again.

Today, the only red flag on the U.K.'s economic calendar is the net public sector borrowing report. The market is expecting the report to show 12 billion GBP, which is slightly lower than last month’s 13.2 billion GBP figure. The report usually has a significant effect on Cable, so a better-than-expected result could lead to another rally.

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October isn’t over yet, but the pound bulls received their treats early! The release of positive U.K. economic data and a round of risk appetite in markets pushed the pound higher against its counterparts. GBP/USD jumped to a six-week high at 1.5960, while EUR/GBP closed 18 pips below its open price.

While many say that the pound is simply experiencing a natural correction from being oversold, others think that the broad-based risk rally was caused by optimism that the European leaders are going to come up with concrete plans to help the euro region cope with its debt crisis.

Of course, it also didn’t hurt that the U.K.’s public borrowing registered a budget deficit of 11.04 billion GBP in September against the expected 12.0 billion GBP, while the August reading was revised lower from 13.2 billion GBP to 10.9 billion GBP.

Will we see more good news for the pound bulls this week? The release of economic reports will kick off tomorrow at 8:30 am GMT when the current account, mortgage approvals, and BOE Governor Mervyn King’s speech are announced.

On Wednesday at 10:00 am GMT we’ll also see the CBI industrial orders data, which will be followed by the CBI realized sales and the GfK consumer confidence report at around 10:00 – 11:00 am GMT on Thursday.

Let’s see if we can make pips off of these reports, shall we? Good luck in your trading!

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The pound was slightly stronger across the board yesterday as the market’s mood was uplifted by positive Chinese data, optimism with regard to the upcoming EU meeting, and the possibility of another round of QE from the Fed. Cable, which began the day at 1.5931, ended the U.S. trading session at 1.5990.

Today, at 8:30 am GMT, the U.K.’s current account balance and the BBA mortgage approvals survey will be released. The current account balance is expected to show a 9.7 billion GBP deficit, slightly higher than the previous month’s 9.4 billion GBP deficit. Meanwhile, the BBA mortgage approvals is predicted to print a 36,300 figure, up from 35,200.

Then, at 8:45 am GMT, BOE Governor Mervyn King is scheduled to speak. He’ll be talking in front of the U.K.’s parliamentary treasury committee regarding the quantitative easing program they announced a few weeks back. This will probably be a big event for the market, so focus on the pound’s price action during this time. Cable could be in for a lot of volatility!

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Despite the dovish comments from the MPC, the pound stayed strong against its major counterparts. GBP/USD tipped an intraday high of 1.6039 before it closed 4 pips higher than its open price. Meanwhile, EUR/GBP slipped by 16 pips to .8694.

The U.K.’s better-than-expected current account report probably helped, as the report only showed a current account deficit of 2.0 billion GBP in the second quarter when analysts were expecting a 9.8 billion GBP figure.

But before you join the pound bulls in buying up the currency, you must know that the BBA mortgage approvals report is only at 33,100 in September. The number not only disappointed expectations of 36,300 approvals, but also marked the first decline in five months.

Adding to the apprehension of the currency bulls is the MPC’s dovish stance on the economy. Aside from BOE Governor Mervyn King voicing out his doubts on the European leaders hashing out an effective plan in the near future, MPC member Martin Weale also hinted of a double-dip recession. Yikes!

Today voting MPC member Adam Posen will take center stage at 6:00 pm GMT following the release of the CBI industrial order expectations out at 10:00 am GMT. Will the reports give the pound bulls a reason to retreat? Don’t even think of missing these potential market movers!

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Up against the yen and down against the Greenback and the euro! That’s how the pound fared during yesterday’s choppy market environment. GBP/USD closed 22 pips down from its 1.5994 open price while GBP/JPY ended at 121.76. Will the pound find a clearer direction today?

A surprise disappointment in the U.K.'s CBI industrial orders expectations caused the pound to lose its shine yesterday, as the figure fell from -9 to -18 this month. Come to think of it, analysts were expecting the reading to climb a notch to -8, which would mean a slight improvement. However, the report showed the steepest drop in sentiment since 2009, as manufacturers expected orders and output to decline in the coming months.

Later on, BOE MPC member Adam Posen talked about a possible sharp decline in inflation next year, which is making the policymakers very nervous about the U.K. economy. Of course, several market participants interpreted this to mean that the central bank officials are generally dovish about the economy and could be considering further stimulus.

Only the CBI realized sales report is due today and, based on the recent disappointment we got from the CBI industrial orders report, we might see a similar decline in sales volume. Still, analysts are expecting the reading to hold steady at -15 for October. A weaker than expected figure could result in another pound sell-off while a better than expected reading could provide support for pound pairs. Stay on your toes for the actual release at 11:00 am GMT.

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The currency bulls partied in the streets yesterday, and the pound bulls definitely had a good time! While EUR/GBP rose by 107 pips to .8813, GBP/USD also went up by 125 pips to 1.6097. GBP/JPY even went from an intraday low of 121.13 and finished the day at 122.24!

Aside from the positive news from the euro zone, it didn’t hurt the pound that the U.K. posted better-than-expected economic reports yesterday. The CBI realized sales only clocked in a -11 reading in October when analysts had been looking for a -15 reading. Meanwhile, the GfK consumer confidence data printed at -32, a bit lower than the -30 figure that many were expecting.

Will today be another good day for the pound? No reports are scheduled for release in the U.K. today, so keep an eye out for any news report that might shift risk sentiment!

It’s not too late to bag some pips, kids!

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If I were to sum up Cable’s price action in one word, it would be BOOOOOOOOOORING! Due to the lack of economic catalysts, Cable simply traded within a very tight 80-pip range. It found a bottom at 1.6070 and found resistance at the 1.6150 level.

It was truly an uneventful day for the Cable as its economic calendar had produced nothing of importance. This week, however, will be different! There are a lot of economic events that could have a huge impact on Cable’s price action. Let me go through them one by one.

On Tuesday, the Nationwide HPI (6:00 am GMT), the Manufacturing PMI (9:30 am GMT), and the Preliminary GDP report (9:30 am GMT) will come out. The Nationwide HPI is slated to show a 0.1% gain, while the Manufacturing PMI and the Preliminary GDP are expected to print 50.0 and 0.4%, respectively.

Then, on Wednesday, the country’s Construction PMI will print. The Construction PMI is predicted to improve to 50.2 from 50.1 the previous month.

Last but not the least is the Services PMI on Thursday. The market is expecting the survey to show a 51.9 reading, down from last month’s 52.9.

With the amount of data coming out, I suspect price action will be very volatile this week. Be aware of the ever-changing market sentiment folks, as we never know when the Cable’s uptrend will end up reversing! Be careful out there!

609

What a day for the pound! Even with risk aversion lurking in the markets, the pound still managed to come out ahead of its European counterparts, clocking in some decent gains versus the euro and franc. EUR/GBP dropped over 150 pips to finish at .8615, its lowest level in a month, while GBP/CHF rose nearly 200 pips to close at 1.4107.

No biggies were released from the United Kingdom yesterday, so we can probably attributed the pound’s victory to euro weakness. With market still wary about the European debt crisis, the pound looked more attractive to market players.

We could be in for some wilder moves today, as a slew of red flags will be raised during the London session.

First, the Nationwide HPI will be released at 7:00 am GMT. Early estimates are calling for a 0.1% increase in the index, which equal the rise we saw last month. This would indicate the housing prices are rising, which would be a positive sign for the U.K. housing market.

Later at 9:30 am GMT, monthly manufacturing PMI and preliminary quarterly GDP data will be released. The manufacturing PMI is projected to come in right at 50.0, which would indicate neither growth nor contraction in the manufacturing sector. Meanwhile, word through the grapevine is that the U.K. economy grew by 0.4% last quarter, but that 2[SUP]nd[/SUP] quarter GDP may be revised down from 0.2% to 0.1%.

If these figures come in worse-than-expected, we could see the pound take a hit across the charts today.

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Risk aversion spooked the pound pairs from making any gains yesterday, as both GBP/USD and GBP/JPY ended in the red. Cable closed 50 pips below the 1.6000 handle while guppy landed 75 pips below its 125.76 open price. Will the pound get a chance to recover today?

Economic data from the U.K. came in mixed yesterday, as a couple of reports turned out better than expected while the manufacturing PMI missed expectations. The manufacturing index for October slipped from 50.8 to 47.4, indicating that the industry contracted during the month.

The weaker than expected reading was such a huge blow to the pound that it was unable to react to better than expected Nationwide HPI and the preliminary GDP reading for the third quarter. Nationwide reported that house prices rose by 0.4% in October, higher than the predicted 0.1% uptick. Meanwhile, the third quarter GDP came in a notch higher than the estimated 0.4% growth. This also marked a considerable rebound over the measly 0.1% growth seen during the second quarter.

However, economic hotshots were quick to point out that this rebound might not last because the U.K. has yet to deal with the effects of stagflation on their economy. Aside from that, as the recent manufacturing PMI revealed, there are some weak spots in the U.K. economy that could drag down growth later on.

Today, only the construction PMI is on tap. The index is expected to hold steady at 50.1 for October, but we might be in for another weak figure just like the manufacturing PMI. Keep an eye out for the actual release at 10:30 am GMT because it could determine where the pound pairs are headed today.