Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
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Rarr! Like a lion pouncing on a sickly gazelle, the Sterling seized control over its American counterpart last Friday. The pair reached a two-month high of 1.5230, but ended the week at 1.5197, just above its daily opening price of 1.5182.

GBPUSD found a bit of support from the USD’s weakness after the US posted disappointing NFP data, which revealed that hiring was down by 125,000 versus the estimated 106,000 decrease in jobs. High volatility hit the markets upon the release of the much-awaited report, but the Sterling stayed on track and didn’t lose ground.

Moody’s evaluation of the UK also gave the Sterling a solid lift. The credit-rating agency announced that the UK would probably keep its top AAA rating if they can execute their plans of cutting back on spending by 85 billion GBP. What a way to boost confidence!

In other news, the June construction PMI came in at a reading of 58.4. Though slightly lower than the projected reading of 58.6, June’s record was just 0.2 below that of May, which was the strongest performing month since September 2007. It looks like the UK’s low interest rates are helping the housing market thrive in spite of looming budget cuts and tax hikes.

In the week ahead, the markets are in for a series of hard-hitting reports.

To start things off, the June services PMI is slated to show a reading of 55.1, down 0.3 from the previous month. High PMI figures are usually bullish for the currency, so look for the Sterling to appreciate if we see an upside surprise. Catch the report at 8:30 am GMT today.

Then on Tuesday, the Halifax HPI is projected to show a 0.6% uptick in house prices in June after the previous month printed a 0.4% decrease. Since rising house prices attract investors, the report can trigger a bull run if results come in better than expected.

Thursday picks up with the May manufacturing production report at 8:30 am GMT. Most expect to see a 0.5% increase in output produced by manufacturers, following the 0.4% decline in April. Sterling bulls, be on the lookout because an increase in production often benefits the local currency.

At 11:00 am GMT of the same day, the Bank of England will be making its monetary policy announcement. The BoE is widely expected to keep the asset purchase facility locked at 200 billion GBP, and interest rates pegged at 0.50%. But even though things are expected to remain unchanged, it would be a good idea for you to catch the report. After all, the BoE could surprise the world and create monstrous movements in the markets in the process.

To end the week, the UK will be publishing its June PPI input report at 8:30 am GMT on Friday. Analysts are forecasting a decrease of 0.4% in input prices incurred by producers after the month of May recorded a 0.6% decrease. Since higher input costs are often passed onto consumers, the report is usually used as a measure of future inflation. Remember, high inflationary pressures give the BoE reason to hike interest rates, so look for the Sterling to gain if results come in better-than-expected.

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GBPUSD opened the week just barely above the 1.5200 handle. It tried to hold on for a bit, but with very few bulls playing “Tug-o-Cable,” it didn’t take long for the pair to tumble down to the day’s low at 1.5090. Good thing the Pound managed to regain some ground nearing 1.5150 before the New York session closed.

Most traders, including myself, were missing in action in the markets yesterday as we continued to party in the USA. Yeaaah! Well for the most part of it at least. The disappointing UK data didn’t escape our attention despite the loud music and the overflowing beer. Yeeeah! CIPS announced that the PMI for June fell short of the 55.1 consensus by printing at 54.4.

The Pound has been notoriously strong in grabbing ‘em pips from the dollar but could the austerity measures be the party-pooper on the bulls’ Pound party? Probably. Let’s see what the British consumers have to say about this.

Nationwide is due to announce its consumer confidence report anytime today and the index is anticipated to have decreased by 1 basis point in June. Uh oh. This couldn’t be good news for the Pound. Also, the British Retail Sales Consortium will then deliver an inflation report with the shop price index at 11:00 pm GMT. If it prints below May’s 1.8% figure the Pound may just have itself another party pooper.

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“Everything is… Kung Fu.” Like the famous snake move in the latest Karate Kid movie, the pound mirrored the price action of the higher-yielding currencies after the lack of UK reports exposed the currency to risk appetite. GBPUSD reached an intraday high of 1.5228 before ending the day at 1.5167.

The country did make headlines when Martin Weale, former director of National Institute of Economic and Social Research, replaced Kate Barker as a new member of the Monetary Policy Committee. Too bad the traders didn’t show much reaction to the news because they expected the MPC noob to join the bandwagon on his first interest rate decision in August.

It was Australia that held the spotlight yesterday when they reported stronger than expected trade balance data and after the RBA’s hawkish statements following the interest rate decision. They were a signal that export demand remains healthy despite fears of debt contagion and reports of cooling demand from Asia. This gave risk appetite to shine, leading to nice pound rally.

No important reports are scheduled for release today, but the bulls and bears might gear up for tomorrow’s Halifax House Prices at 8:30 GMT and the interest rate decision at 11:00 am GMT. Watch your charts closely, folks!

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The Sterling went on a wild bull ride yesterday as improved risk appetite spurred the markets on. After dipping to 1.5081, GBPUSD rallied to close at 1.5191, marking a 51-pip gain for the day.

Lucky for the Sterling, investors were once again willing to take on bigger risks as the equities and commodities markets gained in yesterday’s trading sessions. It also helped the Sterling bulls’ cause that the USD has been weak as of late.

It seems like the markets are still giddy over the government’s austerity plans. Ever since the belt-tightening plans were unveiled in June 23, bulls have been staging a consistent rally. But for how long can they ride this news and sustain the Sterling’s upsurge? Only time will tell!

Today’s a big day for the UK –even bigger than Twilight Eclipse (sorry PipCrawler)!

At 8:00 am GMT, the June Halifax HPI is slated to show a 0.2% uptick in house prices following the 0.4% decline in May. High figures are usually bullish for the currency since rising house prices are one of the first signs of continued spending.

At the same time, the manufacturing production data is due. The report is expected to show a 0.4% increase in the output of manufacturers in May, a total reversal from the 0.4% decrease in the previous month. Look for bulls to continue their run if results come in better than expected.

Then at 11:00 am GMT… The moment you’ve all been waiting for… The Bank of England finally makes its monetary policy announcement! Analysts widely expect that the asset purchase facility will remain unchanged at 200 billion GBP, and interest rates will stay at 0.50%. But Sterling bulls may find further reason to celebrate if the BoE makes any hawkish statements – paging Mr. Andrew Sentance! - or gives the markets an upside surprise. Don’t miss out!

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The bears pounced on GBPUSD just when the Pound was about to sing “Oops! I Pipped it Again.” Opening just below the 1.5200 handle, the pair traded higher and peaked at 1.5242. It started its descent during the London session and ended the day at 1.5163.

Instead of asking what messed up the Pound’s jam, try asking what didn’t. Yesterday’s reports sounded more like a sad country song than a Britney Spears hit! Don’t believe me? See for yourself.

The Halifax house price index marked its third consecutive monthly decline in June, printing a 0.6% decrease. It fell short of the consensus which was a 0.2% growth from May’s 0.4% drop. That was the first disappointment of the day and was quickly followed up by the figures for manufacturing production. Its 4.3% reading in May showed that growth was slower compared to what the market anticipated at 4.5%. The frustration in manufacturing may have shadowed the hustle in the mining and utility sectors, as shown by the 0.7% increase in industrial production in June, up from May’s 0.4% slide.

The National Institute of Economic and Social Research (NIESR) GDP estimate also joined the disappointment bandwagon as it decreased to 0.7% in June from May’s 0.9% reading.

Wait, the Pound’s pip-heartbreak playlist didn’t end there.

The BoE sang a more dovish tune when it announced that it kept interest rates at a record low of 0.5% in order to accommodate the austerity measures. Analysts are expecting not to hear any rate hike from the central bank until 2011.

In addition to those bearish notes, the IMF decided to revise UK’s growth forecast. The British economy is now expected to grow only by 1.2% in 2010 compared to the earlier forecast of 1.3%. In 2011, only 2.1% growth is expected, down from the previous estimate of 2.5%.

Will we hear more bull-depressing jams for the Pound today? Hmm, I think we have to check out today’s reports to answer that.

First up are the trade balance figures. The country’s trade balance is expected to show that imports exceeded exports by 3.8 billion GBP in May. Its visible trade balance reading, which measures the value of physical goods traded, is expected to show a 7 billion GBP deficit in May, which is actually an improvement prior to its 7.28 billion GBP reading in April.

We also have the data on output prices on tap. The Producer Price Index (PPI) for Output is eyed to show a monthly increase of 0.1% in June. Also, the PPI for Input, which measures the change in the prices of raw materials that manufacturers use, is expected to have decreased on a monthly basis by 0.4% in June. Traders usually use these to gauge inflation because an increase in the expenses of manufacturers is usually passed on to consumers.

The reports are set to be released at 8:30 am GMT. If they come out better than expected, we may just see the Pound on a better bull-induced mood today.

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Is happy hour over for the Pound? The currency took a break from its rally last week when weaker than expected economic reports were released from the UK. GBPUSD ended Fridayat 1.5066 after an intraday high of 1.5205. Meanwhile the Guppy closed 47 pips lower than its opening price at 133.54.

The optimism on the pound enabled the sterling pairs to reach their intraday highs last Friday, but the unexpectedly disappointing trade balance and PPI reports reversed the day’s gains. May’s 8.1 billion GBP trade deficit grossly missed the 7.1 billion GBP expectation, and suggested that the pound’s appreciation against the dollar might have affected the country’s trade and growth.

The monthly PPI reports were also honey to the pound bears as output prices dipped by 0.3% last June after a 0.1% increase last May; while the PPI input in June mirrored the 0.2% drop in May. The dip in prices indicates lower inflationary pressures, which might lessen the BOE’s motivation to hike interest rates this month.

Were the soft reports last Friday only the beginning of the country’s disappointments? The final first quarter GDP figure is due today at 8:30 am GMT. The data is expected to match the last quarter of 2009’s 0.3% growth, but a better than expected figure would imply that their economy grew despite their inflation problems.

The CPI figure for June is also out tomorrow at 8:30 am GMT. The annualized data is projected to soften to a 3.2% growth from May’s 3.4%, which would be more evidence for subdued inflationary pressures.

The last red flag for the week will be raised on Wednesday at 8:30 am GMT when the jobless claimant figures are released. The number of workers applying for unemployment benefits is estimated to ease to 4.5% from May’s 4.6%. This could give GBP bulls some fuel to regain some of last Friday’s losses, as more employment means that people actually have some money to pay for their tabs at the pub.

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Traders were quick to abandon the pound yesterday, after S&P maintained its negative outlook for the UK’s long-term credit rating. As a result, GBPUSD slipped 132 pips from its opening price to an intraday low of 1.4949, and finished the day off at 1.5081.

Though S&P upheld the UK’s AAA-rating, they announced that in the future, the UK might not be so lucky. It seems like credit-rating agencies are worried about the government’s abilities to follow through with their austerity plans. Yikes!

In other news, the final results are in for the Q1 2010 GDP data. Since it was widely expected, it came as no surprise that the UK maintained its 0.3% quarter-on-quarter growth, mirroring the same rate of growth as Q4 of 2009. Hmm… Over the coming months, it will be interesting to see if they can sustain this level of expansion alongside the government’s belt-tightening measures.

Adding to the UK’s headaches was the very disappointing current account data, which was anticipated to show a deficit of 4.5 billion GBP. Q1 of 2010 revealed a deficit of 9.6 billion GBP, more than double the forecast, and far worse than the previous quarter’s surplus of 0.5 billion GBP. This highly negative value usually translates to the Sterling’s depreciation, because a large deficit often reflects the selling off of the Sterling to purchase foreign currencies.

At 8:30 am GMT today, set your eyes on the year-on-year CPI data for June, which is slated to show a 3.1% increase in prices of consumer goods, following the previous month’s 3.4% uptick. One of the BoE’s main considerations in hiking rates is strong inflation, so look for the Sterling to rally if June prints a higher-than-expected value.

Then at 11:01 pm GMT, Nationwide will release its consumer confidence survey, which most expect to issue a reading of 64 in June after printing a 65 in May. Since consumer confidence reflects willingness to spend, be on the lookout for a bull run if the report gives an upside surprise.

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“Reunited and it feels so goooood,” sang the Pound as it finally escaped to the bulls turf yesterday after hanging out with the bears for three straight days. GBPUSD opened at 1.5030 and consolidated there until the bulls came charging in during the London session. The pair skyrocketed to the day’s high at 1.5192, and settled down at the end of the day at 1.5168.

So how did the Pound find its way back into bull love?

If you guessed inflation, then you’re absolutely right. UK’s National Statistics Office announced that consumer prices rose 0.1% in June, translating to a 3.2% annualized increase, higher than the 3.1% consensus. The pound bulls seems happy enough with figures, but it looks like theBank of England (BoE) isn’t. Time and time again, the BoE has mentioned that the price increases are only due to temporary factors. The rise in June however, could be enough for it to finally admit that inflation in UK is more than just a fling. This could be a problem because the proposed austerity measures rule out an interest hike as an option to combat inflation.

Will the pound and the bulls’ love story continue today? Hmm, I think we should tune in to today’s employment reports to find out. At 8:30am GMT, the National Statistics Office will announce how many people claimed unemployment benefits in June. It is anticipated that claims have fallen in June to 20,000, which is 10,900 less than May’s figures. Despite the relatively optimistic forecast, the unemployment rate is eyed to have remained at 7.9% for the month. If the figures come out less than the consensus, we may just see the pound enjoy some more bull lovin’ today.

We also have the average earnings index on tap which is considered to be an indicator of consumer inflation. If you plan on going long on the Pound, you’d want to see a number higher than the 3% forecast as this would usually be bullish for the currency.

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“Let’s get ready to rumbleeeee!!!” The Sterling became the pound-pip-pound heavyweight champion after it extended its gains against the majors yesterday. The pound knocked the dollar down by 89 pips and closed at 1.5266, while the euro took a 36-pip hit from its opening price and ended the day at .8348.

The UK’s better than expected employment reports helped the currency throw in some heavy punches. The jobless claimants dropped by 20,800, which was not only better than the expected 20,100 decrease, but was also the fifth consecutive monthly decline. Of course, it didn’t hurt that the unemployment rate in May also dipped to 7.8% from April’s 8.0%.

The strong employment figures that followed the favorable inflation data suggested that the economy’s recovery might be gaining muscle. This appealed to MPC member Andrew Sentance, who reinforced his campaign for a higher interest rate in his speech yesterday. His hawkish statements enabled the pound to extend its gains across the charts. Sentence pointed to a stronger business outlook, and called out his fellow MPC members to reevaluate the state of the economy.

Today we will see the quarterly housing equity withdrawal at 8:30 am GMT. For the first quarter of 2010 analysts are expecting the consumers to inject 3.3 billion GBP into their loans that are secured by their houses, but aren’t used on housing purchases. A higher figure might suggest that more people are comfortable using their residences to fund their spending.

At 10:00 am GMT MPC member David Miles will speak at a business forum in Bristol. Will he echo Sentance’s take on the interest rate? Tune in to find out!

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Okay, who angered the Sterling?? Admit it Cyclopip, it was you, wasn’t it?? Whatever it was that you did, the Sterling didn’t look too happy about it, as it surged ever so strongly during yesterday’s trading sessions. GBPUSD rallied from 1.5256 to close at 1.5446, capping of a humongous 190-pip gain. Yowza!

Yesterday brought news of an improving economic outlook for Europe as Spain had another successful bond auction. Lucky for the Sterling, confidence spilled over from the neighboring euro zone, and encouraged investors to buy up the British currency.

Though no hard-hitting reports were printed in the UK yesterday, GBPUSD found a bit of support from weak US economic data. According to the Empire State and Philly Fed manufacturing indexes, manufacturing activity seems to be on the way down.

Hmm… Alright, Cyclopip, so maybe it wasn’t you… But you’re not off the hook yet! I’ve got my eyes on you!

It looks like the newswires will be silent again today, with no UK reports scheduled for publishing. If you’re looking to trade GBPUSD, you might want to take a look at what the US has in store. They’re scheduled to release their CPI report at 12:30 pm GMT, and the preliminary University of Michigan consumer sentiment figure at 1:55 pm GMT. If these print lower-than-expected figures, GBPUSD could be in for an extended rally.

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Looks like the Pound bulls are getting tired of running the uphill path on the charts! GBPUSD struggled to stay above the 1.5400 handle and slipped midway through the London session. Without any economic report to cheer them on, the Pound bulls let the pair finished at 1.5300 as it appears that risk aversion came back in force.

With stocks selling off on Friday, it seems to me that risk aversion was the major theme last Friday. This didn’t bode well for the pound, which dropped against its major counterparts. Let’s see if this carries onto this week or if Pound bulls will find this as an opportunity to buy at a cheaper price.

Uh oh, it seems like the bears still have the upper hand in Cable mara-pip-thon powered by yesterday’s disappointing house price index. Late yesterday, the Rightmove’s HPI revealed that the asking price of homes for sale fell by 0.6% for July after posting a 0.3% growth for June. Hmmm… is the housing market showing more signs of weakness?

We have a few high-caliber reports set to be released this week. The most important ones you have to look out for are the Bank of England minutes on Wednesday, retail sales on Thursday and GDP on Friday.

The BOE’s report is perhaps the most heart-pounding of the three. If you’ve been keeping tabs on Britain, you’ve probably heard of the impressive numbers that the economy has been printing. Some currency traders are wondering if monetary policy committee has grown less dovish with increasing consumer prices and decreasing claimant counts. Now, the ultimate question is, can the BOE report give the Pound bulls the adrenaline rush that they need? Stay tuned to the report and find out yourself.

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Last Sunday, the Rightmove housing data showed that UK’s Humpty Dumpties were sitting on cheaper walls. Was that why the pound had a great fall?

GBPUSD closed 46 pips lower than its open price at 1.5230 after an intraday high of 1.5352, while EURGBP soared to .8499 from its open price of .8448.

The largest property website reported a 0.6% decrease in the asking price of home sellers, its first decline this year. Apparently, the tighter lending rules and the government’s budget plans spooked the buyers from buying new houses. This might be bad for their economy since less purchases of homes can dampen construction and consumer spending.

Of course, it didn’t help that traders are now having warm fuzzy feelings for the euro. After being in the deep for so long, traders are now taking profit in their short euro positions, which caused the pound to lose weight against the common European currency.

Will the light data today give the pound weight? The mortgage approvals due 8:30 am GMT is expected to increase by 2,000 from May’s 50,000, but a higher number might mean that more people are eligible for a loan.

The net borrowing of the public sector will also be released at 8:30 am GMT. A figure lower than the expected 13.2 billion GBP from May’s 16 billion GBP might indicate that the government is making progress on their proposed budget cuts.

At 10:00 am GMT, CBI is set to release their manufacturing data. Maybe the budget cuts lowered the index expectations to -24 from June’s -23, but a better figure might indicate confidence in the economy’s growth.

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I hope you didn’t get motion sickness from all the wild moves we saw from Cable yesterday! Traders were in for quite a ride on the GBPUSD train as it started the day off at 1.5233, plunged down to 1.5154, and closed at 1.5282.

What caused GBPUSD to chug up and down the charts was perhaps the mixed feedback the UK received from yesterday’s releases.

On one hand, the preliminary mortgage approvals figure came in disappointingly, showing just 48,000 new mortgages for home purchases in June, which is 2,000 short of the record in May, and 4,000 short of what was expected. This comes as bad news because it could be interpreted as a sign that construction activity would be down in the future. After all, how will construction prosper if people don’t have the funds to buy new houses!

But on the plus side, public borrowing clocked in at 14.5 billion GBP in June. Over the coming months, most are expecting public borrowing to come in weak as the government tries to put a dent into its large public debt. So although the June number marks a decline from the 16 billion GBP that was seen in May, it still comes in as an upside surprise as it managed to exceed expectations of 13 billion GBP.

It looks like we’re in for a break from economic reports today. But do catch the MPC meeting minutes release at 8:30 am GMT. This one is particularly interesting because we might finally find out what Sentance, the lone BoE member who voted for a rate hike last July 8, sees that nobody else does.

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As risk aversion directed the currency market’s traffic yesterday, the Pound virtually had no choice but to take a backseat to the dollar. The bears drove GBPUSD from the intraday high of 1.5335 and parked the pair at 1.5177 to end the day.

But this is not to say that the Pound went down without a fight. No sir! In the late Asian and early European trade, they were able to hold on and recover GBPUSD after the pair fell more than 100 pips in two minutes! Wth happened? Another fat fingers episode? Some leaked data? In any case, the pair bounced right back up and chilled out before the minutes of the latest BOE meeting were released.

Much to the dismay of the Pound, good ol’ Sentance’s hawkish stance wasn’t enough to rev up the bull engine. Seven out of the eight monetary policy committee members voted to keep rates on neutral gear despite the increase in inflation and improvement in the labor market. The doves insisted that the heightened inflationary pressure is only due to temporary factors and there is no reason for the BoE to tighten its monetary policy.

But today’s a new day. Can the Pound make a u-turn and cruise up the charts?

Hmm, based on today’s reports it seems like it will still continue on its downhill roadtrip. Retail sales figures will be made available to the public at 8:30 am GMT. Analysts are expecting a decrease from last month’s 0.6% reading to 0.5% in June which would translate to an annualized increase of 1%. There is also the release of the EU Stress Test results tomorrow which many point out as the primary cause of risk aversion in the markets. Yikes! Good luck on your trades today!

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Score one for UK! Spain may have won the 2010 FIFA World Cup, but UK bagged another prize yesterday after the sport-related purchases kicked the retail sales upward and boosted the pound. EURGBP climbed by 25 pips at .8442 from its open price, while GBPUSD rocketed to a 1.5264 close after an intraday low of 1.5151.

The 0.7% retail sales growth in June gave the pound bears a reason to cheer, especially when analysts only estimated a 0.5% increase. This dampened concerns that the economy would slip into another recession and spurred demand for the pound.

Will UK score another one today? Their quarterly GDP report will be out at 8:30 am GMT. The figure is expected to grow by 0.6% from last quarter’s 0.3% growth, but a better than expected figure might signal that the recent developments were more than leftover highs from the famous sport.

The BBA mortgage approvals will also be released at the same time. The figure beating the expected June’s 37,000 approvals from May’s 36,700 might be good for consumer spending since it implies that more people are eligible for mortgage loans.

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GBPUSD ended the week on a high note with a lot of help from improving fundamentals. The pair entered the weekend at 1.5422, about 160 pips higher than its weekly opening price.

Sterling bulls got quite the surprise when the preliminary GDP data for Q2 of 2010 almost doubled the forecasts for a 0.6% expansion by showing a 1.1% quarterly growth. It’s easy to see why investors were so eager to buy up the Sterling, as the most recent GDP report marked an awesome improvement from the modest 0.3% growth in Q1 2010.

Hmm… It looks like the healthy GDP figure left investors optimistic about the economy’s ability to withstand the possible risks to future growth presented by the government’s austerity plans.

For the week ahead, you’ve got a couple of headliners from the UK coming your way.

At 10:45 am on Wednesday, BoE governor Mervyn King is set to take the stage and testify before the Treasury Select Committee. Being the “main man” in the central bank, he has the ability to move the markets if he drops clues about future interest rates and monetary policies. As always, watch for hawkish comments that tend to drive the Sterling bulls to go on a buying frenzy.

Also, the Nationwide HPI report will be available anytime this week. Last month showed a modest 0.1% increase in home prices. But in July, analysts believe houses declined in value by 0.4%. Sorry to tell you this bulls, but your party might come to an end if results come in worse than expected!

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Do you smell what the Pound is cookin’? If you answered pips, then give yourself a pat on the back! After opening the week at 1.5421, the Pound wrestled the dollar and tapped its three-month high at 1.5520 before ending Monday at 1.5486. Boo yeah!

  There weren’t any economic reports from Britain yesterday, so what powered the Pound bulls to choke slam those bears?

  Hmm, I have a pretty good feeling that it was a tag team effort from last week’s preliminary [GDP](http://www.babypips.com/forexpedia/GDP) release and the EU Stress Test results. Why? It’s because National Statistics reported that the economy grew by 1.1% in the second quarter which was almost twice as much as the market’s forecast that was at 0.6%. Also, the results of the EU Stress Tests revealed that none of the seven banks that failed came from the UK. And that was the steroid combo that spurred the Pound bulls into a rally.

  But that was yesterday... Let’s concentrate on what we have for today shall we? At 10:00am GMT, we’ll hear from the Confederation British Industry as it reveals its Distributive Trades index. It is expected to show that consumer spending was better in July with its forecast up at 3 from June’s -5 reading.  Will this be enough the Pound continue its reign as the HeavyPip Currency Champion of the Charts? If the actual figure comes out better than expected, it just might be!
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Even though California girls have their daisy dukes with bikini tops on, there’s no lack of summer lovin’ in UK. In fact, UK’s summer sales data even brought the pound bulls out in the sun, with GBPUSD puttin’ its hands up to a 1.5595 close after an intraday low of 1.5443.

Yesterday the Confederation of British Industry reported UK’s fastest retail sales growth in three years. Brits, apparently, can’t resist shopping on a warm weather with all the summer discounts and World Cup frenzy.

The retail sales balance went up to +33 after printing -5 last June. This implied that consumer spending remained healthy despite the country’s growth concerns, and got the optimist retailers singin’ “That’s undeniable! Fine, fresh, fierce we got it on lock – until next month, that is.”

UK will take a break from all the partyin’ today, with only BOE Governor Mervyn King’s speech before the Treasury Committee in London to look forward to at 8:45 am GMT. Will he extend the party with hawkish news? Don’t miss all the fun!

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I guess what they say is true - what goes up must come down! After scrambling up the charts four days in a row, the Sterling finally went down for the count during yesterday’s trading sessions. It started quite strongly, rising to an intraday high of 1.5640. But by the end of the day, it fell from the sky and GBPUSD dropped 10 pips from its opening price to close at 1.5585.

Cautionary flags were raised when BoE Governor Mervyn King took to the stand yesterday. He warned the public that the UK economy is facing the very real threat of stagflation, which occurs when prices are rising, but the economy isn’t truly growing. In the past, the BoE has said over and over that the strong inflationary pressures plaguing the economy are temporary. Could this be the BoE’s way of saying inflation is here to stay?

Later today at 6:00 am GMT, Nationwide will publish its house prices index, which is slated to show a 0.3% decrease in prices in July following the 0.1% uptick last month.

Then at 8:30 am GMT, the BoE will release its net lending to individuals report. Analysts are expecting to see the total value of new credit issued to consumers shrink from 1.5 billion GBP to 1.3 billion GBP in June.

Capping off the day is the GfK consumer confidence report, which most expect to show a greater degree of pessimism. A reading of -20 is anticipated for July, following the -19 reading of June. Catch it at 11:01 pm GMT!
Keep your eyes peeled, folks! If these reports print upside surprises, the Sterling could get back to its feet and leap high once again

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“It’s gonna take a lot more to rain on our parade!” said the Pound bulls last Friday after they went on with their buying spree despite weak economic data from the UK. GBPUSD ended the week at 1.5691 after hitting an intraday low of 1.5552. Meanwhile, EURGBP dropped 72 pips from its open price at .8305.

The GfK consumer confidence data might have limited the Pound’s gains after it printed a pessimistic reading of -22, its lowest level in eleven months. Hmm, it seems that the government’s tax and spending plans are starting to spook more people as June’s figure was only at -19.

But the bulls were just too energized from the previous retail sales and GDP data as they boosted the Pound across the charts. GBPUSD even tapped a 5-month high above 1.5700 last Friday!

Will this week’s economic data keep the bulls charged? The PMI reports might give more details on UK’s growth when the manufacturing PMI is released today at 8:30 am GMT, while the services PMI is due on Wednesday at 8:30 am GMT. Better than expected figures might mean that business outlook remains healthy despite weak consumer confidence.

The monthly manufacturing and producer input prices will also be released on Friday at 8:30 am GMT. Manufacturing production is estimated to rise by 0.5% after May’s 0.3% growth, while the price of raw materials purchased by manufacturers is expected to decline by 0.4%. A higher figure for manufacturing and a lower one for raw materials might signal increased production from UK.

The highlight of the week though, will belong to the BOE, as they will announce their interest rate decision on Thursday at 11 am GMT. Many expect the rate to remain at 0.50%, but the BOE might give clues on their future policies and decisions, so don’t miss anything!