Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
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Make way for the pound! After chillin’ like ice cream fillin’ around resistance at 1.5400, GBP/USD finally rallied past the handle yesterday. In fact, the pair even tested the 1.5500 handle before closing the day at 1.5496 with a 112-pip gain.

The U.K.'s economic dock wasn’t really all that impressive with the construction PMI for May coming in slightly worse-than-expected at 54.4 versus the 54.5 forecast.

However, talks of possible easing from the Fed might have convinced traders look past the report. Also, it may have also helped that risk appetite somehow improved in yesterday’s trading.

Will the pound be able to extend it’s gains today with the BOE MPC announcing their monetary policy decision?

As Forex Gump said in his Piponomics article, no one really expects the BOE to hike interest rates from their current 0.50% level. However, many have their ears out for any announcement with regards to providing the economy with more stimulus.

If the central bank does decide to pull the trigger and increase its asset purchase facility from 50 billion GBP at 11:00 am GMT today, we could get the pound sold off. So be sure you ain’t snoozin’ later, ayt??

But if you’re unsure that you can handle the volatility that could come with the interest rate decision, don’t worry. There is also the U.K. services PMI report that you can trade. Due at 8:30 am GMT, the report is expected to show that the services sector somehow slowed in May with the forecast lower at 52.6 than April’s 53.3 reading.

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Make that back-to-back baby! For the first time in over ten trading days, the pound registered consecutive victories versus the dollar. After hitting an intraday low at 1.5430, GBP/USD soared to as high as 1.5601 before settling at 1.5530, marking a 26-pip win.

As expected, the Bank of England didn’t make any changes to its monetary policy, as the central bank chose to keep rates steady at 0.50% and maintain the current balance of asset purchases at 325 billion GBP. The accompanying statement didn’t provide much fire for the market either, so we ended up with a dud of a statement.

Then again, we got more than enough surprises via the good results of the European bond auctions as well as the surprise rate cut by the People’s Bank of China. These events helped prop up risk appetite, which helped the pound surge to new highs.

In other news, the services PMI report came in better-than-expected, printing a reading of 53.3. This was a tad bit higher than the projected score of 52.6 and matched the previous month’s release.

Today, we’ve got the producer price index input report heading our way at 8:30 am GMT. Word is that producers paid 1.2% less for their raw materials. Remember homies, changes in price of raw materials affects the pricing of the finished products that producers sell. If it appears that production costs are dropping, then it could signal that inflation is dying down a bit in the U.K.

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Down goes the pound! GBP/USD ended Friday’a trading 61 pips below its opening price at 1.5469. Meanwhile, GBP/JPY was down 83 pips at 122.78.

Risk aversion as well as disappointing U.K. data might have weighed down the pound last week.

The PPI input report came in much lower than expected at -2.5% and fell short of the consensus which was for a more modest -1.2% reading.

But it wasn’t all bad for the pound. The consumer inflation expectations report was higher in May at 3.7% than its 3.5% figure for April.

On top of that, it would seem that risk appetite has picked up in the early part of today’s trading following data from China and news about the EU bailing out Spanish banks. If risk appetite is sustained for the rest of the day, we could see the pound erase some of its gains. So be sure you gauge market sentiment, ayt?

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It looked as though Cable was going to make serious headway up the charts, as it had climbed to a high of 1.5583 in the London session. But it gave up all of its gains come the New York session, and the pair found itself right where it began the week at 1.5583! Who pressed CTRL + Z??

Some dovish comments from MPC member Adam Posen might’ve had a hand in the pound’s weakness late in the day. If you’ll recall, Posen recently hit the headlines with his decision to withdraw support for more stimulus. But now it appears as though he may be flipping his vote AGAIN!

In his speech yesterday, Posen called on the BOE to bump up its asset purchases, telling the central bank to diversify and buy assets other than government bonds. Hah! It looks like we can count on the next MPC meeting minutes to show that Posen voted for more easing. The question now is, have any other MPC members changed their votes?

Looking forward, we have manufacturing production data on tap, and survey says it could be disappointing. Forecasts have growth petering out to 0.0% in April after March’s 0.9% surge. Catch the release at 8:30 am GMT.

After that, at 2:00 pm GMT, we’ll have the NIESR GDP estimate to mull over. It could provide support for the pound if it prints a figure higher than the previous estimate of 0.1%, so don’t miss it!

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Weak data ain’t got nothin’ on the pound, baby! Despite disappointing manufacturing figures yesterday, both GBP/USD and GBP/JPY traded higher. By the day’s close GBP/USD was up 89 pips from its opening price at 1.5577. Meanwhile, GBP/JPY closed at 123.81 after opening at 123.07.

It was reported that manufacturing production contracted by 0.7% in April and disappointed the market forecast which was for the report to come in flat for the month.

Luckily for the pound, good vibes and risk appetite were rollin’ all over the markets yesterday with investors optimistic about Spain getting enough cash to recapitalize its banks.

With that said and given that our forex calendar is blank for reports from the U.K. today, be sure you keep tabs on market sentiment, ayt? Keep in mind that the pound usually rallies when risk appetite is in play and it doesn’t do so well when risk aversion kicks in. Good luck!

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The pound may have been stable for the most part of the day, but the bears sure do know how to rock things up at the end of the day! GBP/USD, after trading within a 50-pip range for the entire Asian and European trading session, was sold-off heavily during the U.S. session when Egan-Jones, a credit rating agency, announced that it had downgraded Spain’s rating to CCC+ with a negative outlook.

Looking ahead, it seems that GBP/USD has room to fall further. Apparently, traders are speculating that the Bank of England (BOE) could opt for more monetary easing later this year to protect the British economy from the spillover effects of the euro zone crisis. Traders believe that the BOE could expand its quantitative easing program to 450 billion GBP from the current 325 billion GBP.

The U.K.’s economic calendar for today presents nothing of interest as only the CB Leading Index is scheduled for release. Historically, the index hasn’t had an impact on GBP/USD at all. I don’t suspect the upcoming release to be any different!

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What’s that? More QE from the BOE? No problem! The pound bulls were able to flex their muscles yesterday despite the release of bearish reports in the euro zone. Cable went up to 1.5559, while Guppy also enjoyed a 27-pip rally? What happened exactly?

Nothing much, if you take a look at the CB leading index, the only economic data released from the U.K. The report only printed a 0.2% growth in April after rising by as much as 1.1% in March.

Even Mervyn King’s speech shouldn’t have boosted the pound so much. The BOE Governor not only stressed the deterioration of the debt crisis in the euro zone, but he also hinted that the central bank will soon implement additional quantitative measures. Apparently, among their options is launching a long-term bank-lending program that could help local banks lend to individuals and businesses.

Good thing that the pound traders were looking at the bigger picture. As it turned out, King wasn’t the only central bank official talking stimulus. Central bankers from the euro zone, the U.S., Japan, and even the G20 officials have been giving speeches left and right, saying that they are prepared to launch coordinated actions in case the markets go downhill after the Greek elections this weekend.

Let’s hope that there won’t be any need for dramatic actions! Only the trade balance report at 8:30 am GMT is scheduled for release in the U.K. today, so you might want to keep a close eye on any news that might affect sentiment for high-yielding currencies!

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“Victory” cried the bulls last Friday as they were able to drive Cable of its ascending triangle formation. Cable broke past the 1.5600 major resistance level to close the U.S. trading session 142 pips higher at 1.5701.

While Cable ended the day with a huge gain, it wasn’t like that the entire day. Initially, Cable fell due to poor data. The country’s trade balance deficit widened significantly to 10.1 billion GBP from 8.7 billion GBP. The forecast was for the deficit to shrink to 8.5 billion GBP. Thanks to bad data elsewhere, specifically in the U.S., the negative trade balance was eventually forgotten, and Cable was able to recover its losses.

Cable’s forex calendar this week is jam-packed with high profile events.

On Tuesday, the U.K.’s consumer price index will be published. It will come out at 8:30 am GMT and it is anticipated to show a 3.0% inflation rate, just like the month before. Usually, higher-than-expected results are considered bullish for the currency.

On Wednesday, watch out for labor data and the MPC Meeting Minutes at 8:30 am GMT. The market expects unemployment in the U.K. to remain at 8.2% even though the number of jobless people is predicted to fall by 3,100. Meanwhile, the MPC Meeting Minutes is slated to show that all 9 voting members chose to hold rates in their most recent meeting.

On Friday, the retail sales report is due. Like the rest, this report will be released at 8:30 am GMT. It is anticipated to show a gain of 1.1%, opposite the 2.3% decline seen the month before.

There’s a lot of data on tap, so we could see a lot of volatility from Cable! Be careful out there!

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While the pound bid cheerio to profits against the Greenback, it was able to extend its gains against its other counterparts. While Cable slipped by 46 pips to 1.5668, EUR/GBP also fell to .8028 while GBP/JPY registered another 24-pip gain.

No major report was released from the U.K. yesterday, so the pound traders busied themselves with risk appetite from the favorable Greek election results.

And then, of course, there are also traders who continued to buy the sterling after Mervyn King announced possible plans to protect the British banks from the euro zone crisis last Friday. Unfortunately, more quantitative easing from the BOE is also on the table for investors.

Will the CPI report scheduled today at 8:30 am GMT fuel the QE speculations? The data isn’t expected to print any different from its previous 3.0% figure, but an upward surprise might hold back predictions of more easing from the central bank.

Also keep an eye out for the retail price index and house price index released at the same time as the inflation numbers. Both reports are seen to print lower figures than their previous readings, but make sure you watch closely for surprises!

Last but definitely not the least is the BOE’s quarterly inflation report out at 11:01 pm GMT, where the BOE will release its forecasts and predictions on the economy. Don’t even think of missing it!

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“I get knocked out, but I get up again. You’re never gonna keep me down,” sang the pound yesterday as it managed to bounce back up after a weak U.K. CPI release. GBP/USD dipped to a low of 1.5615 then closed at 1.5731 while GBP/JPY ended the day at 124.20.

U.K. annual CPI figures for May came in weaker than expected as the headline reading landed at 2.8% while the core version of the report showed a 2.2% increase. Analysts were expecting the headline CPI to stay at 3.0% and the core CPI to print a 2.3% rise. With subdued inflationary pressures in the U.K., many are now speculating that the BOE has enough room to conduct another round of easing measures in their next policy statement. Based on recent economic data from the U.K., it does look like their country could use more stimulus!

Today, the U.K. claimant count change is set for release and the report is expected to show a 3.1K drop in claimants for May. A larger than expected decline would be positive for the pound while an increase in joblessness could force pound pairs to return their recent gains. Make sure you keep an eye out for that release at 8:30 am GMT.

Also due today are the minutes of the latest monetary policy meeting of the BOE. This should shed light on why the central bank decided to keep rates on hold during their previous statement and could contain hints about their future monetary policy moves.

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Look who joined the dove camp! Yesterday the MPC shocked the markets when it printed a ridiculously close 5-4 vote on additional stimulus. And get this – BOE head honcho Mervyn King is officially on the dove camp! So how did the news affect the pound?

The pound ended the day mixed against its counterparts yesterday. GBP/USD gave up 27 pips and EUR/GBP bagged a 13-pip gain, but GBP/JPY also rose by 61 pips.

The MPC minutes was initially bearish on the pound as the close call hinted at more quantitative easing at a not-so-distant future. The data showed that the MPC folks believe that threats from the euro zone and the other weakening major economies have increased.

The employment figures weren’t any help either. Though the unemployment rate held steady at 8.2% in May, claimants of unemployment-related benefits have soared to 8,100. That’s a lot more than the 4,000 that analysts were expecting!

Fortunately for the pound, investors are attracted to stimulus like bees to honey. The prospect of more money to boost the economy next month spurred bullish trades in the later trading sessions.

Will the economic reports scheduled today be of any help to the pound bulls? At 8:30 am GMT we’ll see the retail sales report, which will be followed by the CBI industrial orders expectations at 10:00 am GMT. The retail sales data is expected to improve to a 1.1% gain from a 2.3% slip, but stick around in case we see any surprises!

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Despite the strong retail sales data, the pound was unable to hold its own against the safe haven dollar yesterday. Risk aversion reared its head in the foreign exchange market again, which allowed the pound bears to just sell, sell, and sell! GBP/USD, which began the day at 1.5704, found itself 118 pips lower at the end of the U.S. trading session at 1.5586.

The retail sales report showed a nice 1.4% gain. This was much higher than the 1.1% increase initially predicted and opposite the previous month’s 2.4% decline. Unfortunately, this wasn’t enough to boost optimism as data from other parts of the world, most especially those from the U.S., failed to meet market expectations.

The U.K.’s economic calendar today is empty, but given the recent surge in risk-off trades, we could see Cable continue to lose ground. Watch those support levels on Cable folks, as they could very well break!

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After Thursday’s big losses, the pound was able to hold its ground against the Greenback, as GBP/USD ended the day almost unchanged at 1.5583 on Friday. Will its descent continue this week?

Not much action on GBP/USD last Friday. But considering the big drop that we saw on Thursday and the lack of heavy reports on Friday, can you blame traders from taking a breather?

This week, we only have a couple of red flags to keep an eye out for. The first major report, public sector net borrowing, is due tomorrow at 8:30 am GMT. After that, at 9:00 am GMT, we’ll take at the latest inflation report hearings.

Then we’ll pick up on Thursday, with the current account balance and final GDP report set to come out at 8:30 am GMT.

But until these heavy hitters come out, it looks as though we’ll have to trade based on underlying market sentiment for the pound, which seems to favor the bears on growing speculation of more stimulus from the Bank of England.

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After gapping down over the weekend, GBP/USD swung this way and that before it managed to end the day in the green by closing 11 pips up from its 1.5562 open price. GBP/JPY, on the other hand, didn’t have such a good day as it chalked up a 123-pip loss from its 125.24 open price.

Although the U.K. didn’t release any economic reports yesterday, pound pairs were weighed down by risk aversion from news of Moody’s downgrades and Spain’s request for a bailout. Luckily for GBP/USD though, stronger than expected U.S. data triggered a bit of safe-haven dollar selling.

The U.K. is set to release its public sector net borrowing report today which would reveal the difference in income and spending for government offices. The figure for May is expected to come in at 13.6 billion GBP, which would reflect a budget deficit. A higher than expected reading would mean that the government owes much more than its making, and this could be negative for the pound. Keep an eye out for the actual release at 8:30 am GMT.

Also scheduled for today are the U.K. inflation report hearings, which could contain information on future BOE monetary policy decisions and whether the central bank could have more room to ease or not. Pay close attention to the remarks during the hearings to find out if the BOE might implement another round of stimulus in their next statement!

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Though the U.K. reports we got yesterday weren’t exactly bull-friendly, the pound was able to chalk up decent gains against the dollar. Cable began its rally at the very start of the day, and by the end of the New York session, it had reached 1.5643 for a 70-pip gain on the day.

Public sector net borrowing rose to 15.6 billion GBP last month (2 billion GBP more than expected), as the government racked up debt to make up for a shortfall in income tax collections and an increase in spending. Hmm… Now that ain’t exactly what you want to see from a country that’s supposedly trying to cut its debt! If this keeps up, Chancellor George Osborne will have a hard time meeting his austerity target this year!

Meanwhile, the inflation report hearings brought grim news as BOE Governor Mervyn King declared that economic conditions have worsened in the U.K. in light of the euro zone debt crisis. Aye caramba! According to King, he was “struck by how much has changed” since the last time the BOE produced its inflation report.

But apparently, it ain’t just the euro zone that has King worried. He said he’s particularly concerned about worsening conditions in Asia and other emerging markets. He even added that the central bank hasn’t ruled out a possible move to slash interest rates to boost the economy.

Today, we only have a couple of second tier reports on tap. First up is the BBA mortgage approvals report due at 8:30 am GMT. Look for mortgages to rise from 32,400 to 32,800 in May. Then at 10:00 am GMT, CBI realized sales data will be released. According to forecasts, the index will probably record a fall from 21 to 12 for the month of June.

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It was rough sailing for Lady Cable yesterday, as it gave back all its gains versus the dollar. GBP/USD dropped 77 pips to finish at 1.5566. Is the pound in for more losses today or can the bulls make a comeback?

Mixed data may have been cause for the pound’s downfall yesterday.

The British Banking Authority released a report that indicated that the number of mortgage approvals for last May came in at just 30,200. This was worse than the projected figure of 32,800, and a significant drop from April’s pace of 32,100.

This is indicative of two things. First, that not as many consumers are qualifying for mortgage loans. Second, those who do qualify are holding back on adding any additional debt.

On the flip side, the CBI realized sales report printed much higher than expected, coming in at 42. It was projected to have a score of just 12. This means that more retailers reported higher sales in the past month.

If the report came in that much better-than-anticipated, why didn’t the pound rally?

Apparently, the CBI believes that the figures are a fluke and may have been distorted by additional holidays over the past month. We’ll have to wait till next month’s release to see whether this is true or not.

For today, we’ve got a whole slew of data headed our way during the London session.

First, more housing data in the form of the Nationwide HPI will be available at 6:00 am GMT. Word on the street is that housing prices rose by 0.3% in the past month.

Later on at 8:30 am, we’ve got a trio of reports headed our way.

The current account is expected to show a deficit of 8.9 billion GBP. No surprises here, the account has been in the red since mid 2003!

The Bank of England will also be releasing its credit conditions survey, which should help provide more insight into the state of British lending. If it shows that credit conditions are deteriorating, it would simply be in line with other data that we’ve received lately.

Lastly, the final quarterly GDP report is projected to show no changes from the previous release, which indicated that the British economy dropped by 0.3% last quarter.

If all these reports come in weaker-than-expected, it could trigger another pound sell-off midway through the London session.

Phew, that was a long one! Good luck trading today homies!

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Risk aversion and weak U.K. data did a real number on the pound yesterday as they teamed up to drag the British currency down the charts. GBP/USD hit a new two-week low as it slid 52 pips to 1.5514.

Sellers took full control of GBP/USD once the market caught sight of yesterday’s downbeat U.K. data. Not only did the U.K. post a wider-than-expected current account deficit of 11.2 billion GBP (versus forecasts for 8.9 billion GBP), but it was also confirmed that the economy shrank 0.3% in Q1 2011. What’s worse is that apparently, the U.K. slipped into recession earlier than previously thought!

Hmm… It seems the case for more QE has strengthened, as more and more analysts think we’ll see some sort of easing in the BOE rate decision next week. A survey of economists actually reveals a 75% chance that the central bank will bump up its asset purchase program by another 50 billion GBP.

It’ll be quite interesting to hear what my homeboy, BOE Governor Mervyn King has to say about all this as he’s expected to hold a press conference alongside the release of the BOE financial stability report at 9:30 am GMT. If the central bank head speaks dovishly and hints about more QE, it could very well trigger another strong round of pound selling!

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Nothing like a shot of good news to spruce up risk appetite! Thanks to a positive reaction t oteh EU summit, the pound bulls went wild like it was a Beatles concert, boosting the pound to new highs. GBP/USD rose a whopping 217 pips to finish at 1.5661, while GBP/JPY closed 194 pips higher at 125.19.

It turns out that Mervyn King’s speech became a non-event, as it was overshadowed by the results of the EU summit. Despite the rosy sentiment in the markets, King still warned banks about potential hurdles down the road and urged banks to shore up their capital. According to King, this should be a higher priority than paying out cash reserves in the form of dividends or giving out big bonuses. I gotta admit, he makes an excellent point!

For the next three days, we’ve got a slew of purchasing manager’s indexes coming out, starting with the manufacturing PMI due today at 8:30 am GMT. The index is projected to have increased slightly from 45.9 last month to 46.6 for this month’s reading. If the index comes in even higher than anticipated, it could trigger another round of pound buying today.

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Pound bulls sure know how to put on a good show! GBP/USD traded lower during the Tokyo session and tapped an intraday low at 1.5641. Then the bulls started to step up their game and hustled the pair past resistance at the 1.5700 to end the day 18 pips above its opening price at 1.5721.

The pound struggled a bit in yesterday’s trading as traders started to become wary about the EU leaders’ plans to address the debt crisis. Good thing the U.K.'s manufacturing PMI report topped expectations and gave the currency just enough support for it to end the day with a win.

Government data revealed that the U.K.'s manufacturing sector did not contract as much as analysts expected in June. The manufacturing PMI printed at 48.6 versus the 46.6 consensus.

However, despite the better-than-expected figure, some market junkies warn that you shouldn’t get too excited about the report as it translates to the second month of contraction for the sector. (A figure over 50.0 would’ve meant that the manufacturing sector expanded during the month.) Just something to keep in mind!

Today, our forex calendar lists a few reports for the pound and all of them are due at 8:30 am GMT.

Perhaps the construction PMI will have the biggest market impact from today’s roster, so remember that the consensus is for the report to come in at 52.9 following the 54.4 reading for May. Along with it, the BOE will also release its data on new credit issued for May. The forecast is for net lending to individuals to have amounted to 1.1 billion GBP. Lastly, we’ll also get the number of new mortgages approved in May and it is anticipated to come in at 51,000.

If you’re looking to buy the pound today, keep your fingers crossed for better-than-expected figures. However, if you’re planning to sell the currency, watch out for disappointing numbers. Good luck!

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Not too much action on pound pairs yesterday, which pretty much traded within their daily ranges. GBP/JPY struggled to break above its weekly open price at 125.30, while GBP/USD finished slightly lower at 1.5690, just 30 pips below its opening price.

We got mixed results on the economic data, as the construction PMI and net lending to individuals reports had contrasting releases.

The construction PMI came in much worse-than-expected, printing at 48.2, after it was projected to come in at 52.9 This marks the first time since January 2011 that the index has printed in the red and indicates potential contraction in the construction industry.

On the other hand, credit conditions seem to be better than initially estimated, as consumer loans amounted to 1.3 billion GBP last month, which is slightly higher than the anticipated 1.1 billion GBP figure. Hopefully, credit conditions continue to hold up and we see more lending and spending take place in order to boost the U.K. economy.

For today, all we’ve got on our plates is the services PMI, due at 8:30 am GMT. According to our trusty economic calendar, the index is projected to print at 52.9. If we see the report come in much better-than-expected, it could give the pound a slight boost up the charts!