Daily Economic Commentary: United Kingdom

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!

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!

“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!

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!

“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.

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!

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!

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.

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!

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.

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!

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!

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.

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!

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!

Look down below! The pound dropped like a rock in yesterday’s trading following the disappointing data that were released from the U.K. GBP/USD closed the New York session 100 pips below its opening price at 1.5590. Meanwhile, GBP/JPY ended the day at 124.51 after opening at 125.24.

The services PMI, considered as a leading indicator of economic health, came in at 51.3 for June. Unfortunately for pound bulls, analysts higher expectations, predicting it to come in at 52.9 following its 53.3 reading for May.

We’ll probably see more action in GBP pairs today too, given that the BOE is set to announce its interest rate decision at 11:00 am GMT.

Keep in mind that expectations are for the central bank to keep interest rates steady at 0.50% but increase its asset purchase program by 50 billion GBP to 375 billion GBP. Some market junkies say that the recent string of weak economic data along with lower inflation pressures in the U.K. could be enough reason for the BOE to stimulate the economy even more.

Should BOE Governor Mervyn King announce a bigger increase in the bank’s asset purchase program, we could see the pound get sold off. However, if central bankers decide against any increase, the pound could rally. So be on your toes for the announcement, ayt?

Time to rev up the presses – the Bank of England is about to print more moolah! With the BOE adding yet another 50 billion GBP to its stimulus efforts, the pound stood no chance against the Greenback and the yen. What the heck is the BOE up to?

Though the central bank held its interest rates steady at 0.50%, the Monetary Policy Committee decided to give momentum to the U.K. banks’ liquidity by adding 50 billion GBP worth of stimulus. The move came at the tails of the BOE’s latest efforts at easing bank liquidity.

The news didn’t set well with investors, who thought that the BOE could’ve implemented other methods with less inflation risks. Not only that, but the BOE’s actions also hinted that more help might be needed in order to rise above the economy’s double dip recession. Cable capped the day 72 pips lower, while GBP/JPY also suffered a 50-pip fall.

Only the PPI input and output data are scheduled for release today, and both reports are expected to maintain their previous growth rates. Keep an eye on risk sentiment though, as traders could continue to price in interest rate cuts made by the PBoC and the ECB.

Good luck in your trades today!

There was certainly no partying for the pound bulls last Friday. GBP/USD closed the day 37 pips lower at 1.5487 while GBP/JPY was down 70 pips at 123.30. It wasn’t all bad though! Against the euro, the pound rallied to its 44-month high at .7925 before closing the day with a 49-pip win at .7931.

It’s easy to say that the pound lost to the dollar and the yen because of the worse-than-expected PPI report on Friday. (Prices of raw materials that manufacturers pay for dropped by 2.2% in June and disappointed the market’s -2.1% forecast.) After all, soft inflation figures could give the BOE more reason to remain dovish, right?

However, like all other higher-yielding currencies, I think that the pound’s performance was primarily driven by the disappointing NFP figures that sparked risk aversion in the markets.

Today, our forex calendar is blank for market-moving reports from both the U.K. and the U.S. If you’re thinking of trading the pound, it might do you well to keep tabs on market sentiment as it could continue to dictate the currency’s price action in today’s trading. Good luck!

When there’s a will, there’s always a way! Despite gapping down to start the week, the pound managed to slowly edge higher throughout the day. GBP/USD closed the U.S. trading session at 1.5475, 57 pips higher from its opening price.

Even though the pound was able to rally slightly yesterday, weakness will most likely endure in the near-term as investors remain doubtful of the Bank of England (BOE)'s recent stimulus moves. Data released earlier today showed a frail housing market. The RICS House Price Balance showed more property surveyors reported a decline in the selling prices of houses.

Today, at 8:30 am GMT, the U.K. will release its Trade Balance and Manufacturing Production Report. The Trade Balance is anticipated to show a 9 billion GBP deficit while the Manufacturing Production report is expected to print a 0.1% rise. Both these reports can have a strong impact price action, so it’s important to keep a close eye on them.

The pound bulls and bears had a battle royale yesterday as they priced in risk aversion in markets and strong U.K. data. Cable and Guppy both slipped by a couple of pips, but the pound went up against the euro and the franc. What’s in store for the U.K. today?

Aside from pictures of Queen Elizabeth II watching the Olympic torch relay at Windsor Castle, I don’t see anything else happening today. No data is scheduled for release, so traders could still get support from yesterday’s reports.

If you remember, both manufacturing and industrial production reports blasted above expectations. Manufacturing in the U.K. rose by its fastest pace in a year with a 1.2% growth against -0.1% expectations, while industrial production also rose by 1.1% when market geeks were only expecting the figure at 0.1%.

Even the trade balance data gave the pound bulls good vibes. Thanks to growth in the exports sector, the U.K.’s trade deficit shrunk from 9 billion GBP to 8.4 billion GBP. Not a bad day for the U.K., eh?

Since economic boards are empty today, you might want to keep an eye out for other major news from the euro zone and the U.S. that might trigger another selloff. As I mentioned in my EUR piece, the battle over the approval for the ESM is heating up!