Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
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And that makes it three for three! Yesterday’s risk rally helped the British record its third consecutive win against the dollar as the coordinated action of central banks spurred risk taking. As a result, GBP/USD rallied to as high as 1.5780 before settling at 1.5692 for an 82-pip gain on the day.

As I had mentioned yesterday, we only had the GfK consumer confidence report to work with as far as U.K. data was concerned. Unfortunately, it didn’t really bear any good news! Though the index rose slightly from -32 to -31, the downtrend in consumer confidence remains intact.

Compared to last year, it seems our homies up in the U.K. feel much, much worse about their current personal financial situation and are more pessimistic about the economy as a whole. The only silver lining in this dark cloud is that more British consumers believe that now is a good time for a major purchase. Just in time for the holidays!

Today, we’ll deal with the U.K. manufacturing PMI which is slated to slide from 47.4 to 47.1. Catch it at 9:30 am GMT.

An hour after that, we’ll take a look at the BOE Financial Stability Report. Considering that central bank officials have been speaking quite dovishly lately, if this report surprisingly gives positive feedback on the economy, it could spark increased demand for the pound.

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It was an up and down day for Lady Cable, which couldn’t sustain its winning run yesterday. GBP/USD basically stayed within range, and eventually ended the day at 1.5685, just 7 pips lower than its opening price.

One of the reasons why the pound may have been unable to post new highs is probably because of the manufacturing PMI, which indicated that manufacturing activity is slowing down. While the report printed better-than-expected at 47.6, it was also the index’s lowest reading in over two years. This highlight the weakness in the British economy, as the U.K. is suffering from poor demand from the U.S. and the euro zone.

In other news, BOE head honcho Mervyn King delivered a speech regarding the state of the British banks. While King did say that U.K. banks are better off than their European counterparts, he did say that not everything is fine and dandy. For one, U.K. banks’ exposure to Irish, Italian, and Spanish debt amounts to nearly 160 billion GBP, and there’s no telling when this will finally come to haunt them.

For today, the only red flag we have coming up is the construction PMI, which is scheduled to be released at 9:30 am GMT. Word is that the index will print at 52.1, which would be slightly lower than the previous month’s reading of 53.9. If this comes in worse than expected, it could cause the pound to take a small hit, so make sure you pay attention when this report is released.

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It was a day of consolidation for the pound, as it basically stayed within its average true range versus the dollar and the yen. GBP/USD basically traded between the 1.5600 and 1.5700 handles before closing at 1.5647, up just 14 pips on the day. Meanwhile, GBP/JPY failed to make any new significant highs or lows and finish at 121.58, marking a 31-pip loss.

The pound benefited from the release of the services PMI report, which printed at 52.1 Not only was this higher than the expected (50.6), but it was also an improvement from the previous month’s release of 51.3.

Digging deeper though, the numbers aren’t as nice as you would think. The new orders, future activity, and employment components were all disappointing, and it appears that we’ll continue to see sluggish performances in 2012.

For today, we’ve got housing data on deck in the form of the Halifax housing price index, due at 8:00 am GMT. Housing prices grew by 1.2% in October, which was a nice reversal from the previous trend of declining home prices. If we see a substantial increase in today’s report, it could give the pound a nice boost and allow it to set off for new highs.

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Aaah, there’s nothing like bad data to wake currency bears out of hibernation. Just ask the pound! Yesterday GBP/JPY was down 39 pips by the end of the New York session, while GBP/USD ended the day 51 pips below its opening price at 1.5596.

It was reported yesterday that consumer spending in the U.K. declined further in November. According to the BRC retail sales monitor report, same-store sales dropped by 1.6% during the month following the more modest 0.6% contraction we saw in October.

To make matters even worse for the pound, the most recent Halifax HPI showed that house prices went back to negative territory once again after printing a 1.2% uptick in October. The report showed that the price of an average home in the U.K. dropped by 0.9% in November. This must have upset pound bulls as the report is considered as a leading indicator of the housing market’s health.

With that said, be sure to be on your toes for the reports from the U.K. listed on our forex calendar today as they could determine the pound’s fate in the charts. At 9:30 am GMT, the manufacturing production report for October will be released and it is anticipated to come in at -0.1%. Along with that will be the industrial production report for the same month which is eyed at -0.3%. Then at 3:00 pm GMT, NIESR will release its GDP estimate for September to October. Watch out for a figure higher than its previous reading of 0.5% as it would probably be bullish for the pound.

There you have it boys and girls. Make sure you ain’t snoozin’ when the numbers are released later, ayt?

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It looks like Forex Gump was correct in saying the pound has become the “European safe haven” currency. Even though risk appetite faded in the financial market, the pound was able to post spectacular gains against both the dollar and the euro. GBP/USD ended the day with a 109-pip gain while EUR/GBP closed 57 pips lower.

On the economic front, the manufacturing production report showed a 0.7% decline, worse than both the 0.1% decrease initially predicted and last month’s 0.1% gain. The industrial production report also shared the same story as it showed a 0.7% fall versus the 0.3% decline forecast.

Today, all eyes will be on the pound as the Bank of England (BOE) announces its decision on interest rates. The market widely expects the BOE to keep rates unchanged at 0.50% so pay attention instead to the central bank’s tone on the accompanying statement. If the BOE updates the market that their quantitative easing program is working, we could see the pound skyrocket across the board again.

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The pound sank down the charts yesterday, as risk aversion weighed heavily on the markets. After consolidating for the better part of the day, GBP/USD dropped midway through the New York session and finished at 1.5635, down 71 pips on the day. Meanwhile, GBP/JPY finished at 121.49, marking a 47-pip loss.

Interestingly, the pound was largely unaffected by Bank of England interest rate decision, which resulted in no changes to its base line rate or its asset purchase program.

Instead, it was comments regarding bond purchasing by ECB President Mario Draghi that sucked the air out of the markets, allowing safe havens like the dollar and yen to rally. Make sure you check out my euro zone commentary for the juicy details on this development!

For today, we’ve got a couple reports on tap in the form of the producer price index and trade balance figures, both of which are scheduled for release at 9:30 am GMT. Producer prices are expected to have risen by 0.3% last month, which would be a complete reversal from the 0.8% decline the month before. Meanwhile, a trade deficit of 9.5 billion GBP is expected to be posted for the month of October.

Now, I’m not too sure if we’ll see a strong market reaction from these two reports, as economic reports seem to have had little effect on price action this past week. Nevertheless, it would be prudent to stay on your toes and be ready for anything!

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While the European Summit was able to support risk appetite slightly, GBP/USD still failed to make any significant gain or loss and closed the day barely changed from its opening price last Friday. GBP/USD sat at the 1.5663 by the end of the U.S. trading session, just 28 pips higher from its opening price that day.

After 10 hours of talks, the European leaders managed to agree on a new fiscal pact last Friday. While it was a step in the right direction, it did not include all 27 European nations and only the 17 member nations that use the euro were involved. In addition, the ESM, the long-term bailout fund that would replace the EFSF, would be capped at the 500 billion EUR and would NOT be treated like a bank. This means that it can’t borrow from the ECB.

Economic data that came out were mixed. On the one hand, the Producer Price Index Input was only at 0.1%, slightly worse than forecast. The Trade Balance, on the other hand, showed a 7.6 billion GBP deficit, which was much better than the 9.5 billion GBP deficit initially expected.

This week, there are several important news releases that we need to watch out for. Today, the Bank of England Governor is scheduled to speak. As the head of the governing body that controls interest rates, his words will be closely listened to as he may drop hints on future monetary policy.

On Tuesday, the country’s Consumer Price Index will be published. The market expects inflation to edge lower to 4.8% from 5.0%.

Then, on Wednesday, some labor figures will be released. The Claimant Count Change is slated to report that the number of unemployed people was reduced by 17,300. Meanwhile, Average Hourly Earnings are predicted to have risen by 2.0%.

Last is the Retail Sales report on Thursday. The report is generally a market mover, so don’t miss it! The consensus is a 0.2% decline.

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Look out below! No thanks to risk aversion in the markets and lack of economic data from the U.K., the pound suffered losses against its major counterparts. GBP/USD ended up closing 60 pips below its open price after dipping to an intraday low of 1.5537.

As I mentioned in my euro writeup, renewed concerns on the euro region’s debt crisis fired up the currency bears yesterday, especially after credit rating agencies Moody’s and Fitch followed the S&P’s lead and warned of more fiscal trouble ahead for the region.

Of course, it also didn’t help that research from the Bank of International Settlements (BIS) suggested that additional quantitative easing (QE) from the BoE won’t be as effective as it was in its earlier days.

You see, the BIS believes that more stimulus from the central bank won’t cut government debt as much as analysts originally estimated. Apparently, the program is subject to diminishing returns if you compare the size of the next asset purchases to the size of the overall government debt.

Let’s hope the economic data scheduled today will give the pound bulls reasons to attack! Earlier today we saw the RICS house price balance clock in only a 17% decline in house prices in November, a bit better than the expected 25% decline.

Hang on to your seats, folks, because at 9:30 am GMT today we’ll see the U.K.’s CPI figures, together with the retail price index. The CPI is expected to print below 5.0% in November, but a higher figure might suggest that the BoE’s prediction of softer inflation might take longer than the central bank expected.

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For the second straight day this week, Cable found itself suffering at the hands of the bears. It was sold-off like ice cream on a hot summer afternoon, ending the U.S. trading session 112 pips lower from its opening price that day.

Cable’s move down was driven by external factors, rather than things happening in the U.K. Due to the lack of quantitative easing talk in the U.S. Federal Reserve statement yesterday, risk aversion took hold of the markets again. This boosted safe haven currencies like the dollar and drove “risky” European currencies like the pound lower across the board.

Data that came out of U.K. were mostly in line with expectations. The monthly consumer price index showed a 4.8%, just as expected. The core version of the report stood at 3.2%, just slightly lower than the 3.3% forecast.

Today, we’ll be treated to some labor data at 9:30 am GMT; namely the Claimant Count Change, the Average Hourly Earnings, and the unemployment rate. The Claimant Count Change is slated to print a 16,100 increase in the number of people claiming jobless benefits. Meanwhile, Average Hourly Earnings is predicted to show a 2.0%. The unemployment rate is expected to have risen to 8.4% from 8.3%.

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Thank goodness for good economic data! Despite the selloff in high-yielding currencies yesterday, the pound was able to come out relatively unscathed against its major counterparts. Cable ended the day with a 10-pip loss after dropping to an intraday low of 1.5409, but EUR/GBP also ended up falling by 26 pips to .8396.

As I said in my EUR writeup, escalating concerns on the euro zone debt drama fueled risk aversion in the markets yesterday. Good thing the U.K. printed better-than-expected economic reports!

The jobless claims data released yesterday revealed that there was an additional 3,000 claimants in November, a bit higher than the downwardly revised 2,500 claimants in October but still a lot lower than the expected 5,300 figure.

In addition, the claimant count rate clocked in at 5.0% for the month, lower than the 5.1% growth rate than analysts were expecting. Lastly, the country’s unemployment rate measured by a three-month rolling average ending in October stagnated at 8.3%, still at its highest levels since 1996.

Will the U.K.’s economic data scheduled today be enough to shield the pound from any more losses? At 9:30 am GMT we’ll get hold of the country’s retail sales report as well as their consumer inflation expectations, followed by the CBI industrial order expectations at 11:00 am GMT.

Of course, you need to keep your eyes peeled for any news that might affect risk sentiment! Word on the hood is that the currency bears are just getting started to end the year with a bang, so make sure you keep a close eye on your pound trades!

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Whew, what a relief! The pound was able to take a break from its slide against its major counterparts as it ended higher against the Greenback and Japanese yen yesterday. GBP/USD closed 47 pips up from its 1.5461 open price while GBP/JPY ended 20 pips shy of the 121.00 handle.

Economic data from the U.K. came in weaker than expected, with retail sales posting a 0.4% decline for November. This was a tad below the consensus of a 0.3% drop, but the good news is that the October figure was revised upwards to show a 1.0% increase.

The CBI industrial orders expectations report also turned out to be a disappointment as the reading dipped from -19 to -23 for this month. This means that manufacturers are projecting a decrease in order volumes for the month, as the index dipped to its lowest level since October 2010.

Despite those poor figures from the U.K., the pound was able to enjoy a nice rally as risk appetite returned to the markets yesterday. It seems that traders are no longer so fearful now that there hasn’t been any bad news from the euro zone lately!

There aren’t any reports due from the U.K. today so make sure you get a good grasp of market sentiment to figure out whether the pound could sustain its recent rally or not.

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With no economic data from the U.K., it was up to the currency bulls and bears to battle with both risk aversion in the markets and the positive economic reports from the U.S. Cable ended up rising by 13 pips from its open price, while GBP/JPY capped the day with a near doji at 120.75.

Downgrade concerns on the euro zone kept a lid on risk appetite for most of the day, so the high-yielding pound showed mixed price action against its counterparts.

Will the pound bulls and bears battle it out again today, or will one camp emerge victorious? Yesterday the Rightmove house price index showed a 2.7% decline in December against the 3.1% fall in November, which suggested that house prices are declining at a slower rate.

Meanwhile, a quarterly bulletin from the BOE showed the central bank’s belief that the GDP will rise a bit on cheap pound and a rise in domestic tourism. The central bank believes that the decline in purchasing power will help boost exports and encourage “staycations” among the Britons.

No other major reports are scheduled for release today, but make sure you keep an eye out for any news event that might affect risk sentiment!

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Ho hum… It was another day of ranging for GBP/USD as the pair paced back and forth between support around 1.5475 and resistance at 1.5550. GBP/JPY was also stuck in consolidation as it bounced from 120.50 and stayed below 121.00. Will the sideways price action continue today?

The U.K. didn’t release any top-tier reports yesterday, which was probably why pound pairs simply cruised across the charts. Just a few hours ago, the Nationwide consumer confidence figure was released and it came in better than expected. The index climbed from 36 to 40 in November instead of dipping to 34, showing an improvement in consumer sentiment for the month.

The CBI realized sales report is set for release at 11:00 pm GMT later. This could show that sales are still decreasing, but at a slower pace, as the index could climb from -19 to -14 for November. Keep an eye out for this report in case the actual figure comes in better or worse than expected because it could push the pound in either direction.

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Yowza! Did you see the pound bust a move yesterday? It marched up the charts like a boss! Taking full advantage of yesterday’s risk rally, it managed to gain 165 pips against the dollar while recording a 102-pip win versus the yen. Let’s see if it has enough momentum to continue climbing!

With help from a couple of better-than-expected reports, the pound was able to make it to the top of the hill.

First, the Nationwide consumer confidence index exceeded expectations when it printed a reading of 40 rather than the 36 that many were anticipating. But although these results were better-than-expected, the details of the report were a bit alarming as they showed that consumer confidence was close to forging a record low last month. Many Britons feel bummed out about the European debt crisis, which only means that its effects have already spilled over to the U.K.

After that, the CBI realized sales report showed a nice improvement in December as it rose from -19 to 9 (versus -14 forecasts). Considering the sharp fall we saw in November, this bit of news came as a breath of fresh air. One of the main reasons why sales picked up was because of pre-Christmas discounting by
retailers. It seems they can’t resist sales in the U.K… Huck would fit in nicely there! Haha!

Today, the U.K. will be rolling out its big guns. It already fired the first salvo with the GfK consumer confidence report. Unfortunately, it didn’t give positive feedback as the index declined from -31 to -33, instead of staying flat as expected. But so far, the report doesn’t seem to be affecting demand for the pound.

Then again, maybe that’s because everyone’s waiting for the MPC meeting minutes to come out! What was said in the last meeting? We’ll find out at 9:30 am GMT! At the same time, we’ll take a look at U.K. public sector net borrowing data, which is expected to show that the U.K.'s budget deficit grew from 3.4 billion GBP to 15.5 billion GBP. Yikes! For a country that’s supposedly trying to slash its deficit, a big number isn’t what you want to see from this report.

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The pound sure has some wild moves up its sleeve! GBP/USD spiked to a high of 1.5775 before it boogied down to close at 1.5677, 16 pips up from its 1.5661 open price. GBP/JPY topped at 122.60 then ended the day at 122.41.

Strong risk appetite from the other day carried on and lifted the pound against its major counterparts during the latter half of yesterday’s Asian session. However, the pound erased some of its intraday gains when the BOE revealed that they are open to further easing in February, even though the MPC meeting minutes showed that policymakers voted unanimously to keep their monetary policy unchanged for the time being.

Meanwhile, the U.K.'s public sector net borrowing data came in line with expectations at 15.2 billion GBP for November. Aside from that, the October figure was revised from 3.4 billion GBP to 3.0 billion GBP, reflecting a smaller budget deficit.

Today, the U.K. is set to release its current account balance for November, which is expected to show a deficit of 5.6 billion GBP. The final GDP for the third quarter of 2011 is also due today and could stay at 0.5%. Weaker than expected figures or any significant downward revisions would confirm the BOE’s hunch that the U.K. economy could remain on shaky ground, which would be bearish for the pound. Keep an eye out for those reports due 10:30 am GMT!

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After posting back-to-back wins against the dollar, the pound decided to take a chill pill, causing GBP/USD to end the day unchanged at 1.5677. Meanwhile, it posted its fifth straight victory against the yen as GBP/JPY crawled 13 pips higher to 122.54.

The economy grew stronger than we all thought in Q3 2011 as the Office of National Statistics revised its estimate up from 0.5% to 0.6%. However, the better-than-expected GDP growth hasn’t affected the grim outlook for the economy. As a matter of fact, even our homeboys in the Bank of England are predicting tough times ahead. It has said that the economy may contract in the current quarter and the first part of 2012.

So far, the U.K. has only gained just over half of the output that it had lost during the five quarters of contraction that it experienced about a couple of years ago.

In other news, the U.K.'s current account deficit hit record highs last quarter, growing from 7.4 billion GBP to 15.2 billion GBP. I did a bit of research and I found out that falling profits in U.K. banks’ foreign units actually contributed a lot to this deficit.

It’s the last day of trading before Christmas, and it looks like we’ll only have BBA mortgage approvals data to work with. I don’t expect this to be a market-moving report, but it may be worth catching in the event it prints a big surprise. Catch it at 9:30 am GMT!

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Even with the flurry of traders off on holiday, we saw some wild moves on Cable last week. After opening just below the 1.5600 handle, GBP/USD dropped all the way down to 1.5362 before boogieing its way back up to 1.5532 to end the week.

Risk aversion came back in force midway through last week, as Italian bond auction results failed to impress the markets. This helped sink Cable and let it drown in the London channel.

We may not see much movement today, as most markets are still in vacation mode. But watch out later in the week, as we’ve got a slew of purchasing managers indexes going up the economic totem pole. Manufacturing, constructions, and services PMIs will be released throughout the week, and this should give us a clearer idea of how the British economy performed in December.

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Trading was very thin yesterday as many markets remained closed. As a result, the pound moved little on the day, slipping just 3 pips down against the dollar to bring GBP/USD to 1.5501. Yeah, it ain’t exactly the best way to start the year, but today seems very promising for the pound!

With many traders savoring the last minutes of their holiday vacations, there was little movement in the markets. Still, last week’s bout of risk aversion seems to have carried over into 2012, making it difficult for the pound to gain ground yesterday.

Now, I don’t mean to exaggerate, but today could be a very big day for the pound! Action will likely pick up today as traders return from vacation. What’s more is that the U.K. is also set to publish its first big report of the year - December’s manufacturing PMI. Survey says that the index will probably tick down two notches from 47.6 to 47.4, but if we see worse-than-expected results, demand for the pound could weaken further.

Knowing all of this, it would be wise to be on the lookout for breakouts on pound pairs. After all, the influx of traders and the manufacturing report could serve as catalysts for big moves!

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In the first [I]real [/I]day of trading, the pound benefitted from the wave of risk appetite that swept the markets and busted a cap against the dollar and yen. GBP/USD rose 146 pips to close at 1.5648, while GBP/JPY finished at 119.94, up 75 pips from its opening price.

The pound got a nice boost from the manufacturing PMI, which printed at 49.6. Not only was this higher than the projected score of 47.4, but it was also a good improvement from the upwardly revised 47.7 we saw last month. Let’s see if this report finally prints over the key 50.0 during next month’s release.

One thing to note is that the pound was also much stronger than the euro, and that EUR/GBP has now dropped over 250 pips during the past 5 trading days. This goes to show that traders are leaning towards the pound right now. Should the euro zone’s debt problems continue to linger in the markets, the pound could be a steady bet versus the euro.

For today, we’ve got construction PMI figures on tap at 9:30 am GMT. Expectations are that the index may fall from 52.3 to 51.8. Take note that if this happens, it would mark the third consecutive month that the index has dropped and this could weigh down the pound later during the London session.

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Just like Katy Perry and Russell Brand’s marriage, the pound’s pips dissolved in yesterday’s trading, paring some of the gains it stacked up on Tuesday. GBP/USD ended the day lower at 1.5620 after opening at 1.5649.

What caused the bulls to fall out of love for the pound?

It was none other than good ol’ risk aversion. Concerns about the euro zone debt crisis once again took their toll on market sentiment. Sadly for the pound, the bad vibes were to much that not even reports from the U.K. were able to keep it from scoring a loss.

The Construction PMI for December printed at 53.2 and topped the 51.8 consensus. With the figure higher than the 52.3 reading for November, it implies that the construction sector of the country expanded during the month.

Meanwhile, the BOE’s report on its net lending to individuals in November matched expectations, coming in at 1 billion GBP.

I wonder if the U.K. Services PMI for December will be able to provide the pound with support on the charts today. Due to be released at 9:30 am GMT, the figure is seen to come in slightly lower than the 52.1 figure for November at 51.6. A better-than-expected reading may just spark a pound rally, so watch out!