Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
550

Unlike the blockbuster movie last year, the “King’s speech” that we witnessed yesterday was anything but inspiring. The dovish comments from the BOE Governor Mervyn King sent the pound reeling down the charts. GBP/USD plunged by a whopping 142 pips to 1.6127, while GBP/JPY also fell down by 155 pips to 123.89.

In his speech yesterday, King announced the BOE’s decision to downgrade both its inflation AND economic growth expectations. The bank now believes that the economy will grow by an annual rate of 2.0%, weaker than the 2.5% growth it predicted in May. As for inflation, the BOE believes that the inflation rate will peak at 5.0% this year before it levels out at 1.8% in two years.

As it turns out, the dovish reports didn’t help the pound bulls who were already skittish on the U.K. riots. Don’t worry though, maybe the economic reports due today can help the pound!

At 9:00 am GMT the U.K. will release the CB leading index, followed by the Nationwide Consumer Confidence data sometime later in the day. If the report print our better-than-expected, then we just might see the pound erase some of its losses.

Good luck in your trades today, kids!

551

Finally, a bit of breathing room! After three days of recording big losses, the pound finally put a stop to its steady decline as risk aversion eased yesterday. Cable rose 94 pips while GBP/JPY posted a 77-pip rise of its own. Is this a dead cat bounce or a reversal in the works?

Surprisingly enough, the only piece of economic data released by the U.K. yesterday failed to get any reaction from the markets. The CB leading index downgraded its reading from 0.6% to 0.0% in July, suggesting that growth could be subdued in the months to come. According to CB officials, the U.K. still faces significant downside risks with the global slowdown and European debt crisis looming over the economy.

Meanwhile, Chancellor Osborne spoke up to defend his austerity plans, which have come under a lot of flak lately. Some blame low consumer confidence on his belt-tightening measures, but those siding with Osborne believe its the prudent thing to do and point to tight bond yields as proof. With the debt crisis still in full swing in Europe, the U.K. has been treated as a sort of safe haven among its debt-laden neighbors. This in turn, has resulted in lower bond yields.

No data on tap today. But I suggest you keep a close eye on risk sentiment. If equities continue to rally, it could mean that risk appetite has indeed improved and that further gains could be in store for the pound. Good luck, folks!

552

With no economic reports released from the U.K., the pound was swept along the risk appetite train on Friday as the currency bulls pushed high-yielding currencies up the charts. GBP/USD capped the day with a 58-pip gain while GBP/CHF was also able to bag a whopping 279 pips (no, it’s not a typo)!

Let’s hope that the pound bulls will be able to pick up steam this week! You see, while many investors do think that the U.K. is a relatively safe bet against its other European buddies, we can’t ignore that the economy has also been printing weak economic data lately. Heck, the Rightmove house price index released a few hours ago already came in with a 2.1% decline in August, which is even weaker than the 1.6% slip in July.

For now though, it might be good to keep close tabs on risk sentiment, as well as the economic data released from the U.K. this week.

Aside from the Nationwide consumer confidence data coming out some time in the next few days, we also have the CPI report tomorrow at 8:30 am GMT, followed by the claimant count change and the MPC meeting minutes on Wednesday also at 8:30 am GMT. Then, later in the week we’ll get hold of the U.K. retail sales report, and finish up the week with data on government spending.

Stay sharp on trading these reports!

553

After consolidating below the 1.6300 handle, GBP/USD broke to the upside and reached a high of 1.6410. The pound also gained against the yen as GBP/JPY closed 69 pips above its 125.12 open price. Is it in for more gains today?

The U.K. didn’t release any economic data yesterday but the improvement in risk appetite was able to push pound pairs higher. It also helped that BOE member Miles remarked that the U.K. doesn’t need additional asset purchases to boost its economy and that monetary policy should eventually normalize.

Today, the U.K. is set to report its CPI and core CPI figures for July. Headline inflation is projected to be up by 4.3% on an annualized basis while core inflation could show a 3.1% increase. Stay tuned for the actual figures due 8:30 am GMT because stronger than expected figures could push the envelope for some tightening moves by the BOE.

Also due anytime today is the BOE inflation letter, which could contain the central bankers’ insights on future monetary policy. Bear in mind that actual inflation is way beyond the BOE’s 2% target so the inflation letter could contain notes on how to tame inflation.

554

The uptrend is still intact! For the fourth straight day, the British pound rallied as a stronger than expected CPI figure lifted GBP/USD up another 80 pips. Against the yen, the pound was equally impressive as it put up a 53-pip gain.

U.K. CPI clocked in at 4.4% last month, besting the consensus forecast which called for a 4.3% rise in prices. Details of the report revealed that increases in the price of clothing, housing maintenance, and rent led the way. Interestingly enough, the market’s initial reaction to the report wasn’t as bullish as you’d think. It actually took a few hours before the pound started to make headway. But when it started to rally, boy did it rally!

In other news, BOE Governor Mervyn King shed more light on the U.K.'s economic situation. But truth be told, he didn’t say anything we hadn’t heard before. He reiterated that uncertainty in the euro zone continue to threaten U.K. growth. And like a broken record, he also said that he expects inflation to peak at 5% in the coming months before it eases, blaming “temporary” factors such as energy costs for the rise in inflation.

If you thought yesterday was a big day, wait 'til you see what the U.K. has in store for us today!

At 8:30 am GMT, all hell will break loose! We have U.K. employment data coming out then, as well as MPC meeting minutes.

According to forecasts, July probably saw an increase of 20,100 in the number of individuals claiming unemployment benefits, down from 24,500 the previous month. Employment gains in the services sector are expected to be countered by losses in the production sector. However, this isn’t expected to move the unemployment rate, which currently stands at 7.7%.

As for the MPC meeting minutes, people are expecting no changes to be made to the number of hawks and doves. Forecasts say we should still see 2 votes for rate hikes and 7 votes against rate hikes. But be ready to act in case results deviate from expectations!

555

What an interesting turn of events! At first, pound pairs got beaten by weaker than expected U.K. data but they made a strong turnaround and ended the day with a win. GBP/USD closed at 1.6549 while GBP/JPY landed at 126.60. Is the pound in for more gains today?

U.K. jobs data printed poor results as the claimant count change amounted to 31.7K in July, higher than the expected 20.1K figure. This brought their unemployment rate from 7.7% to 7.9% for the month. What’s worse is that the June figure was revised upwards to show a higher number of people claiming jobless benefits for the month. Since the actual figures for the past five months all came in below expectations, that just means the U.K. jobs sector is in big trouble!

That’s probably why the BOE monetary policy meeting minutes revealed a unanimous vote in keeping rates unchanged for the time being. BOE officials Dale and Weale, who used to argue for rate hikes in the past few meetings, switched sides and joined the doves this time. This was because they grew concerned about the ongoing debt crisis and the impact of the government’s austerity measures on the British economy. They also noted that these concerns are likely to weigh down inflation in the coming months.

Despite all those negative vibes, the pound was still able to outpace the Greenback and yen when the U.S. session started. Better check out my U.S. economic commentary to find out what happened then!

For today, keep an eye out for U.K. retail sales data due 8:30 am GMT. After rising by 0.7% in June, consumer spending is expected to increase by a mere 0.3% in July. Bear in mind that jobs data disappointed during these months so we might be in for worse than expected results and even a downward revision in June’s figure.

556

And the pound’s five-day winning streak goes out the window! Gloomy retail sales data and risk aversion teamed up to take the British currency down as GBP/USD fell 33 pips on the day. Likewise, GBP/JPY ended 18 pips lower at 126.42. Will the pound end the week on a low note?

Surprisingly enough, the market’s initial reaction to news that U.K retail sales only grew 0.2% in July and not 0.3% as expected wasn’t as bearish as you’d expect. In fact, the pair hardly moved in the hours surrounding the release! But why?

One possible explanation is that the bearishness of July’s figure was countered in part by the upward revision of June’s 0.7% growth. It was upgraded to reflect an increase of 0.8%. And if you take into account that July’s 0.2% month-on-month growth translates to a 4.3% year-on-year increase… well, you’ll see that it’s really not so bad.

In any case, the pound really didn’t begin to weaken until the New York session, when risk aversion swept the markets. Truth be told, there are many analysts (including this old man) that believe that the pound will have difficulty sustaining its current levels. It’s doing surprisingly well considering the MPC recently voted unanimously to hold rates, something it hasn’t done in a loooong time.

Moving on, today we have U.K. public sector net borrowing data on tap. Expectations are for borrowing to drop from 12.0 billion GBP to just 0.4 billion GBP. This report is particularly important report to keep an eye on because the U.K. has been struggling to reign in its debt and has resorted to austerity measures to narrow its budget deficit. If the report shows that borrowing was still high last month, it could put to question the government’s ability to stick to its austerity plans and weaken the pound. Tune in at 8:30 pm GMT to see the results!

557

Just when it looked like Cable was gonna soar to new highs, profit taking set in late in European session, which sank the pound. After hitting a new 4-month high at 1.6620, GBP/USD came tumbling down to close at 1.6477, finishing Friday with a 36 pip loss.

One reason why the pound rallied initially was due to solid public sector net borrowing figures. Expectations were that a deficit of 400 million GBP. Instead, the British government was able to save 2 billion GBP. It seems that the British government is serious about getting its act together and implementing those austerity measures!

Overall, it was a pretty solid week for the pound, which overcame the risk aversion that hit the markets midway through last week. The question is, can the pound continue to pound out more gains?

Looking ahead, there are no red flags coming out from the U.K. until Friday, when revised GDP figures are due. No revisions are expected to the puny 0.2% growth posted for last quarter, but if we do see the report miss the target, it could spark some volatility in the markets.

558

“Let’s just call it a tie and call it a day!” said the British pound to the dollar as GBP/USD ended practically unchanged at 1.6468. Without any data to guide the way, the pair traded quite calmly, staying within the area of its one-year high.

Neither the U.K. nor the U.S. published any reports yesterday, and so the pound was uncharacteristically boring to trade. Given the lack of directional momentum in GBP/USD, we might not get any action until the U.K. rolls out its latest BBA mortgage approvals stats at 8:30 am GMT. Forecasts have July recording an increase of 32,300 in new mortgages, up from 31,700 the previous month.

Then at 10:00 am GMT, the CBI industrial order expectations index is slated to deteriorate from -10 to -13.
Now, these reports normally don’t get much of a reaction from the markets since they’re just tier 2 reports, but should actual results fall far from expectations, we could see a violent turn in GBP/USD.

Last but not least, at 2:00 pm GMT, MPC member Weale takes the stand. It’ll be particularly interesting to hear what he has to say because he’s one of the two MPC members that decided to drop their call for a rate hike. Now, we don’t know for certain if he’ll address his decision to flip sides, but we can expect him to sound a bit pessimistic for the economy. After all, what other reasons would he have to change his stance on rate hikes?? That being the case, it wouldn’t be surprising to see the pound drop a bit after he delivers his speech.

559

It was a disappointing finish for the pound yesterday, as it couldn’t hold on to its gains versus the dollar and stumbled against the euro. After testing as high as 1.6470, GBP/USD dropped late in the day to finish at 1.6494, up just 11 pips on the day. Meanwhile, EUR/GBP edged higher by 30 pips to close at .8750.

The pound initially rallied during the London session, thanks to releases of good economic data and a nice risk rally in equity markets. The CBI industrial order expectations came out rocking like Jay-Z and Kanye’s Watch the Throne album, printing a reading of 1, after expectations were that it would bomb out at -13. The nice improvement in the index came from a boost in the exports component.

Mortgage approvals also printed to the upside, coming in at 33,400, slightly higher than the projected 32,300 figure. A higher number of mortgage approvals is a sign of an improving housing market, as it indicates that there are more buyers capable of handling a mortgage.

No biggies on the docket today for the London session, but keep an eye out for the Nationwide consumer confidence report, which will be available at 11:01 pm GMT. The index is projected to clock in at 46, slightly worse than the 51 score we saw last month.

560

Bears pulled The Creep on the pound and sent it tumbling down the charts despite the lack of any catalyst. GBP/USD ended the day at 1.6379 with a 123-pip loss after tapping its intraday high at 1.6536.

What could’ve caused the pound selloff? Well, aside from the dollar strength, perhaps traders were already bracing for the worst out for the high-caliber reports from the [U.K.](http://www.babypips.com/school/united_kingdom.html) As I mentioned before, the revised GDP report for Q2 2011 will be released this week. But that won't be due until tomorrow so let’s just take a peek at what we have on tap on our[forex calendar](http://www.babypips.com/tools/forex-calendar/) today, shall we?

We already saw that the Nationwide consumer confidence report for July came in better than expected at 49 versus the market consensus of 46.

At 10:00 am GMT later, we’ll have the CBI realized sales index for August. Analysts are expecting to see that sales continued to plunge with the forecast down at -10 following July’s -5 figure.

An hour later, at 11:00 am GMT, BOE MPC member Martin Weale will give a speech at the Chambers of Commerce. He used to be one of the more [hawkish](http://www.babypips.com/forexpedia/Hawkish) members of the MPC but he changed sides in the most recent meeting and voted to keep rates low.

Keep an ear out for what he has to say. If he hints that the BOE would soon need to hike interest rates, we may just see the pound rally. However, if he talks about the underlying weaknesses in the economy, the pound could tumble further down the charts.

561

And there goes another case of loose lips, sink pips! The pound once again lost to the dollar in yesterday’s trading as GBP/USD ended the day 87 pips below its opening price at 1.6292.

Who’s the culprit? It was none other than the once-[hawkish](http://www.babypips.com/forexpedia/Hawkish) [BOE](http://www.babypips.com/forexpedia/BOE) MPC member Martin Weale. He voted for an [interest rate](http://www.babypips.com/school/interest-rates-101.html) increase in seven policy meetings but yesterday, he sounded really [dovish](http://www.babypips.com/forexpedia/Dovish). In a speech at the Chambers of Commerce, Sir Weale explained that he is worried about the debt contagion spreading to the U.K. and signs of weak growth in the [U.S.](http://www.babypips.com/school/united-states-of-america.html) and [euro zone](http://www.babypips.com/school/euro-zone.html). He also pointed out that inflationary pressures have eased, giving the BOE one more reason not to hike rates.

It also didn’t help that the CBI realized sales for August came in worse than expected at -14. Analysts had only predicted a more modest decline to -10 following the -5 reading we saw for July. Keep in mind that the report is seen as a leading indicator of consumer spending and the contraction could be reflected in the retail sales report for the month.

I have a strong feeling that if the much-anticipated revised [GDP](http://www.babypips.com/forexpedia/Gross_Domestic_Product_(GDP)) report for Q2 2011 comes in worse than expected, the pound would continue to tumble down the charts. So make sure you don’t miss that later at 8:30 am GMT. Market junkies are anticipating no revision to from the initial reading of 0.2%. A downwardly revised figure would mean very bad news for the pound. On the other hand, if the reading is revised upward, the pound may just be able to pare its losses!
562

The pound may have gotten bailed out of a loss against the USD, but it wasn’t saved from a beating from the yen! GBP/USD managed to climb 58 pips while GBP/JPY fell 85 pips on soft GDP data.

It’s official y’all! The U.K.'s economic growth was weak sauce in Q2 2010! According to the revised Q2 2011 GDP report, the economy grew (barely!) just as expected by 0.2%. Industrial production was a dark cloud as it contracted by 1.6% last quarter. But the services industry provided a silver lining by expanding 0.5%! Though weak household confidence played a big role in keeping growth from picking up, one-off factors, such as the numerous holidays in April and the Japanese earthquake, also had a hand in slowing the U.K.'s recovery last quarter.

It looks like we’ll have time to ponder over this for a while since we won’t get a taste of tier 1 reports from the U.K. until Thursday, when the Nationwide and Halifax HPI, and manufacturing PMI are published. Forecasts for the Nationwide HPI are a 0.1% increase in house prices, down from 0.2%.

On the other hand, forecasts for the Halifax HPI say look for house prices to increase by 0.5%, up from 0.3% in the previous month. Likewise, the manufacturing PMI is expected to tick up from 49.1 to 49.2.

Then on Friday, we’ll end the week with a bit of construction data. The construction PMI is slated for release and will probably drop from 53.5 to 53.1 if forecasts are to be believed.

But we all know very well that a lot can happen in between now and then. The pound can turn on a dime even without heavy reports from the U.K., so be sure to monitor risk sentiment and releases from the U.S. as well! Peace!

563

Despite U.K. banks being on holiday, it looks like the pound is off to a good start this week as it plowed through other major currencies in yesterday’s trading session. GBP/USD managed to close the day 43 pips higher while GBP/JPY rallied a respectable 43 pips.

The main reason behind the pound’s rally was none other than risk appetite again. It appears that traders were still feeling optimistic following the slightly positive Fedreal Reserve Ben Bernanke’s Jackson Hole Symposium last Friday.

No important data releases in U.K.'s forex calendar today only the reports on Net Lending to Individuals and Mortgage Approvals are coming out. These reports tend to have a very small impact on price action so don’t put too much weight on the actual results.

In any case, both reports will come out at 8:30 am GMT. Net Lending to Individuals are expected to have risen to 1.1 billion GBP from 400 million GBP while Mortgage Approvals are predicted to rise to 49,000 from 48,000.

564

The pound pulled off a Lady Gaga stint yesterday as it slipped against the dollar from an intraday high of 1.6420. Too bad it wasn’t able to end the day on a good note as GBP/USD closed 103 pips below its opening price.

Aside from the broad dollar strength, it also didn’t help that the roster of economic data we saw from the U.K. came didn’t really impress investors.

Data on new credit issued to consumers showed that net lending only rose by 900 million GBP for July and fell short of the consensus by 200 million GBP. Meanwhile, mortgage approvals only printed as expected at 49,000 for July. Then, there was also the GfK consumer confidence report. Although it topped expectations by a point, we still saw confidence continue to plunge in August when the index printed at -31 following July’s -30 reading.

Without any economic report on tap from the U.K. today, will the pound be able to pare its losses against the dollar? Hmmm, that will probably depend on market sentiment so make sure you get a good feel of the market’s mood before you pull the trigger!

565

For the second straight day, the pound fell victim to risk aversion and closed lower versus the safe haven U.S. dollar and the low-yielding Japanese yen. GBP/USD sat at the 1.6233 by the end of the U.S. trading session, a good 72 pips higher from its opening price that day. Similarly, GBP/JPY plunged to 125.01 from 126.05.

Risk aversion wasn’t the only reason the pound fell. Yesterday, Adam Posen, a member of the Bank of England Monetary Policy Committee, commented that the G7 should implement more quantitative easingmeasures to spur economic growth.

Today, we’ve got two red flags on U.K.’s economic calendar.

The first one, the Nationwide House Price Index, comes in at 6:00 am GMT. The market is expecting it to show a 0.1% increase, a tick lower from the previous month’s 0.2% rise.

The second one is the Manufacturing Purchasing Managers Index and it will publish at 8:30 am GMT. The Manufacturing PMI is slated to print a reading of 48.9, down from last month’s 49.1.

566

It’s strike three for the pound! For the third consecutive day the pound lost against most of its major counterparts at the release of weak economic reports from the U.K. It gave up all of its intraday gains in GBP/JPY, while GBP/USD dipped to a low of 1.0632.

With yesterday’s weak data, why would traders want pounds? The Nationwide house price index fell by 0.6% in August after rising by 0.3% in July, while the manufacturing PMI report clocked in a reading of 49.0 when markets were expecting a 49.4 number.

Good thing the pound is still a safer bet against the euro! EUR/GBP fell for a second day in a row yesterday, which suggests that the pound is not the worst tomato in the basket.

Will high-yielding currencies get some risk-lovin’ today? Although the U.K. is set to release its construction PMI at 8:30 am GMT today, traders will probably focus more on the U.S. NFP report coming out at 12:30 pm GMT. If the report prints way worse than analysts had expected, then you can bet your neighbor’s cat that investors would be more wary of buying up high-yielding currencies!

567

The pound may have closed the Friday with just a small gain versus the dollar, but it did experience a huge amount of volatility before getting to that point. The GBP/USD pair had risen as high as 1.6255 from its day open price at 1.6184 before ending the U.S. trading session at 1.6209.

The pair’s wacky movement was the result of the mixed economic data releases. Even though U.K.'s construction PMI came in worse than expected (52.6 actual vs. 52.9 forecast), the U.S. non-farm payrollsgreatly failed to meet consensus. The U.S. non-farm payrolls did not print an increase in the net jobs created at all while the U.S. employment rate remained at 9.1%.

This week, we’ve got a plethora of top-tier data from U.K. Let me list each of them one by one.
Today, at 8:30 am GMT, U.K.'s services PMI will be released. The market predicts that it will print a 54.3 reading, slightly lower than last month’s 55.4. Then, on Wednesday, the report on Manufacturing Production will be published. It is expected to show a 0.1% increase, opposite the 0.4% decline seen the previous month.

On Thursday, the most important event in U.K. this week will happen: the Bank of England’s interest rate decision. It is widely expected that the bank will keep rates unchanged at 0.50% and NOT implement further quantitative easing so the market’s attention will probably turn to the accompanying statement. Hawkish statements such as further quantitative easing or future rate hikes tend to be bullish for the pound, so watch out for those!

And finally, on Friday, U.K.'s produce price index is due. The forecast for the PPI is a -1.6% decrease.

There are a lot of data reports this week, so make sure you know what you’re doing when you put any pound trade on! These reports are major market movers; their releases may result in strong moves that end up stopping you out!

568

With disappointing economic reports from the U.K. working side by side risk aversion in markets, it’s no wonder the pound lost against its low-yielding counterparts! GBP/USD gave up 67 pips, while GBP/JPY also suffered a 50-pip fall.

If you’ve been at your backyard enjoying the holidays, you should know that the U.K.’s services PMI clocked in its 51.1 reading in August, which disappointed the markets’ 54.3 expectations. In addition, the BRC retail sales data showed a 0.6% annualized decrease in August after showing a 0.6% boost in July.

Only the BRC shop price index at 11:01 pm GMT is due for release today, so stay sharp on any news event that might influence the pound’s price action!

569

If there’s one major currency that sure knows how to drop it low, it’s the pound! GBP/USD edged below the 1.6000 major psychological handle and closed at 1.5947. Meanwhile, GBP/JPY was unable to hold on to the 125.00 handle and ended at 123.87. Will we continue to see more pound weakness today?

Poor U.K. economic data was the culprit for the pound’s fall yesterday as the BRC retail sales monitor printed a negative figure. The report showed that consumer spending slumped by an annualized 0.6% in August, erasing the 0.6% gain seen last July. Components of the headline figure revealed that non-food items led the decline as the increase in value added tax discouraged spending.

Well, the dip in August retail sales doesn’t exactly come off as a surprise since the riots took place that month. What pound traders are wary about is the prospect of further easing from the BOE, which could help keep the U.K. economy afloat. Bear in mind that the central bank is set to make its monetary policy decision on Thursday and, with no U.K. reports on today’s deck, traders could price in their expectations for the BOE rate statement. Be careful out there!