Aston Martin�s GBP shifted its gear higher and raced past the new Nissan Skyline JPY and Chevrolet�s Camaro USD in last week�s 5-day endurance tournament. It was still, however, the BMW�s EUR coupe that took the checkered flag from the Aston Martin to finish ahead of the other racers.
The GBP made a crucial mistake during the final lap of the heat staged last Friday when its GDP for the second quarter continued to slide by 0.8% after already falling by 2.4% previously. The consensus was only for a 0.3% contraction. The culprit? Rising unemployment, wage freezes, negative equity, expensive and rationed credit remains to be the sludge in the GBP�s engine. Such resulted to a 0.7% drop in industrial production, 2.2% slide in construction output, and a 0.6% contraction in the service sector.
Monday�s leg will be held not in the UK but in the US. New homes sales in the US for the month of June, which is expected to have risen to 354,000 from 342,000, will be a key driver for Aston Martin�s GBP. A rise in the figure or at least anticipation of such can give GBP a boost.
The light economic calendar pretty much kept the GBP�s price action range bound all throughout yesterday�s trading session. It closed the US session just a few pips shy of 1.6500 from its 1.6470 Asian open.
The Confederation of British Industry is scheduled to release its distributive trades survey for July today at 10 am GMT. The survey basically measures whether retail and wholesale companies believe that sales volume are expanding or contracting for the reporting month. Since sales volumes of businesses are directly affected by consumer purchases, the distributive trades survey serves as a good leading indicator for consumer spending. Economists expect the survey to print -12, which is an improvement from June�s -17. The reading is still in the negative territory indicating that sales volume is lower.
The possibility of the report printing an upside surprise seems to be in the cards though. Just last week the report on retail sales for the month of June showed that sales jumped 1.2%, almost three times the expect 0.4% rise. Will the distributive sales survey follow suit?
More range bound motion for the pound yesterday, which lost slightly against the USD as the dollar generally gained across the board. The GBPUSD pair closed slightly lower at 1.6439. Still, the pair cant seem to break past the 1.6400. Will today�s action lead to break out of the consolidation area between 1.6550 and 1.6400?
A report released by the Confederation of British Industry showed that a majority of UK retailers reported that sales have fallen from a year ago. 47% said that sales fell, while only 32% reported higher sales, leaving a balance of -15. This was slightly worse than the expected -12 difference. Retailers expect conditions to worsen slightly for August, as unemployment is hurting consumer spending.
Later today, the monthly Net Lending to Individuals is expected to show that lenders are more wiling to give out loans as debt is expected to increase from �600 million to $900 million. The report is due at 8:30 am GMT. Also due at that time is the mortgage approvals report. It is forecasted that 48,000 new mortgages were approved in June.
Tomorrow, higher impact reports will be released in the Nationwide HPI and GFK Consumer Confidence reports. The first report (due at 6:00 am GMT) is forecasted to indicate that housing prices rose by 0.3% in the past month, marking the third straight month of increase. The latter report expects to reveal that British consumer confidence picked up slightly in July, with the index rising from -25 to -23.
UK economic data acted as a buffer preventing a sharp drop in the GBP/USD amidst the USD rally yesterday. Risk aversion may have pumped up the demand for safe-haven currencies but the GBP/USD held on to the 1.6400 handle while the GBP/JPY stayed above 154.00.
Net lending to individuals missed expectations as it stepped down from 0.5 billion GBP to 0.4 billion GBP. Meanwhile, mortgage approvals rose by 48K GBP, exactly as expected. These figures came in line with the BOE’s lending report, which showed an improvement in mortgage lending but that consumers and businesses continue to face challenges in securing funds.
Up ahead, Nationwide is expected to print a 0.3% increase in house prices for July. House prices were up by 0.9% in June. Since the real estate sector is one of the key areas of the UK economy, this report could have a strong impact on the price action of the GBP. The report is due at 6:00 am GMT.
Later on, the GfK consumer confidence reading will be released. The index is expected to post a modest improvement from -25 to -23, indicating that the British still remain pessimistic about the economic outlook. Nonetheless, consumer confidence has been slowly improving in the past few months. The GBP could draw some strength if the actual figure, which is due at 11:00 pm GMT, beats expectations.
The GBP took yesterday�s round on points as it closed positively against the other major currencies. The Sterling sprung back after getting beat for the past couple of days. All it needed was a bottle of �Risk Appetite ™.�
The GBP drew some energy from the better-than-expected UK Nationwide HPI report. House prices in the UK for the month of July surprisingly rose by 1.3% to �158,871 against the initial estimate for only a 0.3% gain. The recent result marks its third consecutive monthly rise after posting a 1.0% advance in the month prior. The lack of supply helped screen the UK�s housing market from the current financial slump. The positive result adds to signs that UK�s housing market may be recovering.
UK�s GfK consumer confidence held at its highest level since April 2008 at -25. Confidence, as measured by the index, was pegged at -39 from a year earlier. The report further supports that the worst slump in this generation for the UK is basing. Having no improvements in the index, however, indicates that consumers remain a little cautious about the market.
No economic reports are due in the UK today. In the US, the advance GDP report for the second quarter is, however, scheduled for release at 12:30 pm GMT. The US economy�s pace of contraction is expected to slow to -1.4% from -5.5%. We might see a surprise upside in the report given the unexpected strength that the US housing market showed. Such could then support the rise of higher yielding assets like the GBP.
Fuelled by risk appetite, the GBP flew more than 250 pips against the USD in last Friday�s US afternoon trading session. Risk appetite has been the dominating market sentiment for three straight weeks now, much to the benefit of the GBP. Will the prospect of global recovery continue to push the GBP to a new yearly high or will the GBP eventually land flat on its back?
United Kingdom�s July manufacturing purchasing managers� index is due today at 8 am GMT. It measures the overall sentiment of businesses towards the economy by asking them to rate conditions in the manufacturing industry by using a 0-100 scale. A reading higher than base line 50 means there is industry expansion. The forecast currently stands at 47.7. If it holds, it would be an improvement from June�s 47.0.
Looking further ahead the week, the Bank of England is set to announce its benchmark interest rate decision on Thursday. Since the interest rate currently stands at an all-time low of 0.5%, a cut would be highly unlikely as it would undermine the currency. What traders will be focused on is the accompanying statement and whether an expansion of the country�s quantitative easing efforts is in the cards.
Given how the GBP pierced through 1.6700 last Friday, the question that begs to be asked now is: Was this merely a temporary break or will buyers push the GBP even higher?
The pound flew up the charts like a Beatles� single yesterday, posting its third consecutive day of big gains versus the dollar. The pair broke out to set a new yearly high at 1.6987 before closing at 1.6940, its highest close since October last year!
It seems like the GBP got a nice boost from the Manufacturing PMI report, which posted a reading of 50.8 for the month of July. This was better than the expected score of 47.7 and marked the first time in 16 months that the index had a reading above 50 � the score that separates expansion and contraction. It appears that activity has picked up as companies are no longer slashing inventory levels at the pace that they were a few months ago.
The GBP also benefited from good earnings data from HSBC Holdings, as well as overall dollar weakness. As long as traders and investors keep focusing on the good news that has been released, I think we will continue to see this recent uptrend to continue.
The pound may find more fuel to burn later when the Construction PMI and Nationwide Consumer Confidence reports come out at 8:30 am GMT and 11:01 pm GMT respectively. Both reports are expected to show some improvements from previous readings, so I think we could see buyers giddy and waiting for their releases.
Tomorrow, more high impact news is due, as the Halifax HPI m/m, Manufacturing and Industrial Production m/m and Services PMI reports all coming out at 8:30 am GMT. All reports are expected to show some improvements, but I wouldn�t be surprised to see slightly better than expected data, especially from the production reports, given the recent data that has been released. Watch out for more big swings and strong moves if buyers continue to dominate the market.
Price movement in the GBP pairs took a breather after the Cable’s 590-pip dash in the past few days. Despite the notable improvements in construction PMI and Nationwide consumer confidence index, consolidation was the theme for GBP pairs yesterday.
Activity in the construction sector showed a huge improvement as construction PMI climbed from 44.5 to 47.0. This surpassed economists’ expectations at 46.0. This marked the slowest pace of contraction in the last sixteen months. The report also noted that the 12-month outlook for the sector is now more upbeat than ever, reaching its highest level in more than two years.
Consumer confidence also recorded an uptick as the corresponding index stepped up from 59 to 60. Analysts expected the index to stay at the previous month’s reading of 59. The rise is attributed to an stabilizing housing market and a recovering manufacturing sector.
Economic news for today could spur a little more excitement in the price action. A gauge of house prices is due at 6:00 am GMT. House prices are expected to be up by 0.7% after posting a 0.5% decline in the previous month. Meanwhile, manufacturing production is projected to hold steady in June after a 0.5% downturn in May. The actual figure is due at 8:30 am GMT. Along with this, services PMI, which is eyeing the 51.9 mark, will be released. The index stands at 51.6 and a significant improvement could boost the GBP.
Again, the Sterling managed to move higher against the USD and the JPY in yesterday�s trading. Fueled by positive UK fundamentals, the GBP spiraled up during the Euro session. Its gains were, however, cut short as investors showed some tentativeness during the US session.
The GBP stepped on a higher gear when UK�s Halifax HPI, services PMI, and manufacturing production showed better-than-expected results. The prices of homes as measured by the Halifax index surprisingly jumped by 1.1% in July against expectations for only a 0.7% increase. Prices fell by 0.5% during the month prior. The advance in the account indicates that demand for houses in July has increased. UK�s manufacturing output also unexpectedly gained by 0.4% in June after falling by 0.6% in May as factories increased production of cars and computers. Lastly, UK�s services PMI beat the initial estimate of 51.9 as well. It came in at 53.2 from the previous reading of 51.6. The improvements in the mentioned accounts add further evidence that UK�s economy is recovering.
Today (11:00 am GMT), the Bank of England will decide on its target interest rate. Market participants expect the bank to leave the rate unchanged at 0.50%. The bank is also expected to resolve whether it will continue or stop its asset-buying program. Last May, the bank purchased bonds amounting to �125 billion as the economy deteriorated. As the economy recovers, the bank may still extend the program to sustain its upswing. However, some economists believe that the bank may halt the program given the positive developments in the economy. The GBP will be negatively affected if the bank extends the program. On the hand, the GBP could rise should the bank hit the �pause button.�
The GBP got slaughtered across the boards yesterday as the Bank of England decided to expand its quantitative easing measures by another 50 million pounds. This puts the total cost of the program to 174 billion pounds. The damage on the GBP was huge. Minutes following the announcement, the GBP fell 150 pips against the USD. It didn�t end there though as it dropped down another 80 pips when the US session started.
The bank says the reason behind the move was because the effect of the recession on the country was much deeper than it initially expected. Interest rates are left untouched at 0.5% though. It seems like rising unemployment and deflation are weighing heavily on Monetary Policy Committee.
Later, expect to see the July producer price index input at 8:30 pm GMT. It measures the average change of goods and raw materials bought by manufacturers month-on-month. Purchase prices probably dropped by 0.8%, economists predicted.
As of this writing, the GBP/USD spot rate stands at 1.6785 and it makes me wonder whether traders have overshot the GBP�s value. Risk appetite has taken the currency all the way to new yearly highs under the perception of global economic differently but the bank looks like it sees things, given its decision to expand its quantitative easing. Because of this unexpected development, is the GBP poised for more losses or will traders just see this opportunity to �buy the dip�?
The pound lost for the second day in a row versus the dollar, as the dollar rallied across the board on better than expected employment data. The GBPUSD pair closed at 1.6683, after it had hit a new yearly high at 1.7031 last week.
Last Friday, Producer Price Index Input and Output reports were released. The reports showed that producer prices output � the price at which manufacturers sell their goods � rose unexpectedly by 0.3% in the past month. Still, many believe that inflation will remain below the BOE�s target of 2% for the time being.
Today, the BRC Retail Sales Monitory y/y and RICS House Price Balance reports will be released at 11:01 pm GMT. Later this week, on Wednesday, the Bank of England will be releasing its latest forecasts for economic growth and inflation. With the BOE expanding its bond purchase program, I wouldn�t be surprised if we saw a downgrade of their outlook on the economy.
Was the recent loss by the GBP a signal of a change of the trend? Or is it merely a pullback that buyers will be looking to capitalize on?
It seems like the GBP is still under that bearish spell cast by the BOE when they expanded their quantitative easing program. The GBP/USD and GBP/JPY tumbled down the charts despite the relatively strong economic data from the UK.
Retail sales in United Kingdom recorded a 1.8% increase in July. This is higher than the 1.4% uptick in June and is better than the 0.8% decline in May, suggesting that same-store sales are starting to stabilize. Additionally, the housing market showed signs of improvement as RICS house price balance came in better than expected. Only 8.1% of surveyors reported a decline in home prices in their respective areas. Analysts expected that the percentage of surveyors reporting home price declines would reach 9.4%, which is already an improvement over the previous month when 17.6% of surveyors said house prices were dropping in their area. These upbeat reports should have fueled a short-term rally in the GBP but failed to do so. Hmm, I wonder why…
Aside from feeling the downward pressure of the BOE’s quantitative easing expansion, the GBP also came under heavy selling after a number of articles provided a bearish outlook for the UK economy. The UK Telegraph compared the state of the British economy to that of Japan in the 1990s when the latter was stuck in more than ten years of stagnation. The same publication also printed an article entitled “How the Bank Came To Get Things So Wrong about the Crash” while The Independent discussed forecasts concerning a second wave of public sector layoffs. The Sunday Times mobbed down the GBP when it said that the BOE would downgrade its growth forecasts in their Quarterly Inflation Report due on Thursday.
The GBP may find it difficult to get back on its feet as the sentiment towards the British economy turns increasingly sour. With only the trade balance as the main event in today’s UK economic calendar, the GBP might have a tough time finding support. The nation’s trade balance, which is due 8:30 am GMT, is projected to hold steady at a deficit of 6.3 billion GBP. Even as the recently reported strength in manufacturing PMI hints at better than expected trade balance figures, fundamentals-based strength is probably no match for the overwhelmingly negative sentiment for the GBP.
GBP/USD�s price movement was boring as it just traded between a 70-pip range throughout yesterday. GBP/JPY, on the other hand, took notice when broke its short term uptrend line. The pair fell by as much as 224 pips as investors shied away from the pound to seek comfort under the JPY.
UK�s negative trade balance (trade deficit) in June expanded more than expected to - �6.5 billion from - �6.2 billion. It was only anticipated to widen to - �6.3 billion. Such expansion can be seen as a sign that the GBP�s weakness has yet to benefit UK�s export industry. The recent run-up in risk appetite, which brought the GBP�s price higher, did not help either.
The worse-than-expected result sent the GBP/JPY tumbling. In a way, this can be viewed positively as it makes the UK�s exports more price competitive compared to the others.
Data on UK�s claimant count change, average earnings index, and ILO unemployment rate are scheduled for release today at 8:30 am GMT. The number of people claiming unemployment-related benefits is expected to reach 25,300 after a reading of 238,000 during the month prior. UK�s unemployment rate (3m) is also projected to increase to 7.7% from 7.6%. Average earnings, on the other hand, are just seen to remain unchanged at 2.3%.
The expected weakness in UK�s job market may hurt the GBP further.
The Bank of England�s quarterly inflation report is also due at 9:30 am GMT. Remember that UK�s latest inflation is still reading below the bank�s 2% target. The report includes the BOE’s inflation and economic growth forecast over the next 2 years. Hence, any positive outlook in terms of inflation and growth would definitely reflect well on the economy and the GBP.
The plethora of economic data yesterday gave the GBP a wild ride yesterday. Despite its highs and lows, it�s amazing how the GBPUSD pair managed to remain in range. It closed at 1.6504, just a few pips away from its Asian session open at 1.6480.
The Claimant Count Change for July, which records number of people who claim for jobless benefits monthly, printed 24,900, slightly better than the 25,300 initially predicted. Still, looking at the bigger picture, UK�s unemployment rate unexpectedly hit 7.8%, worse than the 7.7% forecast. This puts the total number of jobless people to 2.44 million, the highest since 1995.
In a speech made by Bank of England Governor Mervyn King yesterday, he reiterated that the bank decided to expand its quantitative easing program because they realized that the recession was much deeper than what they originally thought. Despite other sectors printing less bad results, the labor market is still very weak and UK�s unemployment rate continues to rise.
Today�s economic calendar is clear as the bright blue sky so the GBP�s direction would probably be primarily dictated by risk tolerance and the data released from other countries.
Cable rose strongly yesterday throughout the European session, before giving back some of its gains midway through the US session. Still, the pair closed higher at 1.6578, marking the third consecutive day that the pound rose.
The pound probably benefited from good GDP data that came out from the euro zone. With nothing scheduled for release, we may see pound trading to be dictated by optimism or pessimism spurred by economic data from other countries. Be on the lookout for consumer inflation data coming out from the euro-zone at 9:00 am GMT. If this reports shows up worse, will this cause deflation fears that will indirectly affect the pound?
Last week, we saw a period of consolidation for the GBP pairs. Could the GBP be gearing up for something big? Was last week’s price action the calm before the storm? Plenty of hard-hitting economic data are in store this week…
After the GBP faced heavy selling pressure when the BOE expanded their quantitative easing program, traders are now looking forward to Wednesday’s release of the minutes from the latest monetary policy committee meeting. They are hoping that these minutes would shed more light on the central bank’s decision, especially since the recent Quarterly Inflation report failed to do so. What the inflation report noted was that the nation’s CPI is expected to remain below their target level of 2% and Tuesday’s release of CPI figures would either confirm or invalidate this claim. The consensus for the CPI stands at 1.6%, which is slightly lower than the previous reading of 1.8%. If the actual figure fails to meet expectations, then we can expect further weakness for the GBP.
No economic reports are due from the UK today. What could affect the GBP’s price action is the reaction to the 2.2% decline in Rightmove HPI, which was released yesterday. After recording a 0.6% uptick in July, house prices edged 2.2% lower in August. Later on in the week, retail sales data are set for release. This could also have a high impact on the GBP, especially if the actual figure falls below the forecast of a 0.4% increase in sales at the retail level.
Another run of risk aversion in the capitals markets caused investors to drop the GBP like its hot. It was one of those days that you just want to forget as the GBP slipped against ALL the other players.
No economic reports were scheduled in the UK yesterday. Such lack of event, however, did not save the GBP from slumping. A slower-than-expected growth in the Japanese economy sent shocks across the globe and triggered a global sell-off in the capitals markets causing investors to run to the safety of the USD and JPY and away from the other majors like the GBP.
UK�s CPI for the month of July is due today at 8:30 am GMT. The headline index is expected to slow to 1.5% from 1.8%. Its core CPI is also seen to decelerate to 1.5% from 1.6%. General prices in the UK have risen nicely compared to the US and the euro zone. However, UK is not yet completely out of the woods and it can still fall into deflation. A reduction in the index still suggests that prices are increasing, albeit at a slower pace. If the rise prices continues to mend, market participants may see this as a threat which could lead to another GBP sell-off.
Better-than-expected economic reports that came out of UK gave the pound a nice backdrop to stage a bullish correction after its recent steep decline yesterday. It closed the day at 1.6550, almost 200 pips from its Asian open price.
The headline Consumer Price Index (CPI) for July, which measures the average change in price of consumer goods and services year-on-year, printed an increase of 1.8%, slightly higher than the 1.5% rise forecast. The core CPI, which excludes the price of highly volatile items such as food, energy, alcohol and tobacco, improved to 1.8% from last reporting period�s 1.5%. Lastly, the Retail Price Index (RPI) was less bad than initially expected. It reported that prices fell only 1.4% and not 1.7% like economists were expecting. All this data is primarily concerned in measuring the country�s inflation.
Go take some time out and read the short article I did on UK�s economy on my blog to shed more light on this inflation mumbo jumbo! It also contains some insight on today�s upcoming Monetary Policy Meeting Minutes (8:30 am GMT) and tomorrow�s report on Retail Sales (8:30 am GMT)!
Yesterday�s trading session almost left the pound crying over spilled milk � or rather, tea. The pound fell during the Asian and European sessions against the USD and JPY, before bouncing back up slightly midway through the US session. The GBPUSD and GBPJPY eventually closed trading at 1.6535 and 155.44 respectively. Where will the pound head off to today?
The minutes of the last MPC meeting revealed that Bank of England Governor Mervyn King actually pushed for an expansion of its asset purchase program to �200 billion. He, along with 2 other members, were outvoted 6-3 in favor of the smaller expansion to �175 billion. However, the report did state that all members agreed that further expansion was needed over the next 3 months. Clearly, this indicates that the BOE is willing and ready to do whatever it takes to continue boosting the economy. I wouldn�t be surprised if we saw another expansion in the near future if things go south again.
King also said that he expects inflation to slow down to below 1% by the end of the year. Interestingly, the previous day�s CPI report showed that inflation was at 1.8%, which was better than expected. Will we see a drastic drop in inflation over the next couple of months?
In other news, the CBI Industrial Orders Expectations index came up short of expectations, as it printed a reading of -54. It was expected that it would have a reading of -50. This marked the 7th consecutive month that orders have remained below par. Still, there is some slight optimism that things will improve over the next couple of months as companies have already cut inventory levels.
Later today, at 8:30 am GMT, we have a couple of economic reports scheduled for release, with retail sales and public sector net borrowing data due. Retail sales are expected to have risen by 0.3% from June to July.
While most majors stood their ground against the USD yesterday, the GBP’s performance was like that of Mariah Carey in “Glitter”… It was a total sell-off and people just didn’t buy it. Even though UK retail sales received a few nods of approval, the British government’s ballooning deficit hogged the spotlight and ruined the show.
First, the good news… Retail sales were up by 0.4% in July, beating the consensus of a 0.3% uptick. Increased spending on furniture and appliances was the main driver for the rise in retail sales, which climbed from an annually-adjusted 3.1% to 3.3%. This implies that consumer confidence, as well as the housing market, are showing signs of stabilization.
Now, the bad news… Public sector net borrowing swelled from 0.3 billion GBP to 8.0 billion GBP last month. Recall that the UK’s growing budget deficit has already been pinpointed as a major risk to their economy when it came close to a credit rating downgrade from the S&P. The IMF predicted that the UK’s budget deficit will amount to 11.6% of their GDP in the coming months.
No economic reports are set for release from the UK today, which gives the GBP a chance to recover some of yesterday’s losses. But then again, considering these brewing concerns about the British economy, the GBP could make another weak and unconvincing performance for today.