Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
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GBP/USD found itself slightly lower yesterday, no thanks to the disappointing construction PMI figures. By the end of the U.S. trading session, GBP/USD sat at 1.5802, which was 26 pips lower from its opening price that day.

The construction PMI, the only tier 1 report that came out of the U.K., printed a reading of 51.4 instead of the 52.8 figure initially expected. This resulted in Cable retracing some of its gains from the days prior. Overall, however, price action was pretty much muted as traders sit on the sidelines ahead of the U.S. non-farm payrolls.

The only major report due from the U.K. today is the services PMI at 9:00 am GMT. The market is expecting the index to publish 50.5, just like the figure seen last month. Better-than-expected results are usually considered bullish for the pound.

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GBP/USD bounced up and down the 1.5800 handle last Friday like a seesaw. But after the pair plunged to its intraday low of 1.5750, the pound started to pare its losses and ended the day 15 pips above its opening price at 1.5817.

Aside from the positive vibes brought about by the much-anticipated U.S. NFP report, it also helped the pound that the services PMI from the U.K. came in better than expected. The index for January came in at 56.0, topping both the 53.5 forecast and its previous reading of 54.0.

Consequently, the report, along with the positive construction and manufacturing PMIs for January, has gotten a few market junkies excited that we might not hear the BOE increase its asset purchase program when it announces its interest rate decision this week. If this becomes the case, we may just see the pound post new monthly highs against the dollar. So with that said, be sure you don’t miss the announcement on Thursday at 12:00 pm GMT.

Until then, pay attention to the other reports we have on tap from the U.K. For today, we have the Halifax HPI due to be released at 8:00 am GMT. It is anticipated to show that house prices increased by 0.1% in January. A better-than-expected figure will probably help keep GBP/USD trading above the 1.5800 handle in today’s trading so be on your toes!

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Cable traded in an almost perfect “V” pattern yesterday as it moved in two distinct waves. During the Asian and morning European trading sessions, the pair experienced a sharp fall due to the sour market sentiment. But thankfully, optimism picked up during the U.S. trading session, which helped Cable regain its losses. By the end of the day, Cable sat at 1.5830, 12 pips higher than its opening price.

The shifting market sentiment was the result of none other than the Greek drama. Early in the day, pessimism in the market flourished as the prolonged deal on the Greek bond swap increased uncertainty. There were also rumors that Portugal would have to restructure its debt.

But later in the day, this bad news was overshadowed by some positive news from the Greek Prime Minister. Apparently, Papademos is scheduled meetings on Tuesday to discuss the country’s austerity measures to make sure the they receive the next round of bailouts.

The Halifax HPI also helped Cable recover its losses early in the day. It came out with a 0.6% gain, significantly higher than the 0.1% increase initially expected. It was also a huge improvement from the previous month’s 0.1% decline.

No major data from the U.K. today so don’t expect the Cable to exhibit a lot of volatility. Keep an eye out on those major support and resistance levels, as they may serve as inflection points.

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No weak economic report is gonna stop the pound bulls from charging! Thanks to risk appetite in markets, the pound rocketed to its 2.5-month high against the Greenback, pushing GBP/USD to close 69 pips higher than its open price. Booyah!

The only report that came out from the U.K. yesterday was the BRC retail sales monitor, which showed that sales in the BRC-member stores dropped by 0.3% in January after rising by 2.2% in December. Not only that, the BRC shop price index showed that prices of goods sold in BRC-member retail stores only rose by 1.4% in January. That’s a bit slower than December’s 1.7% price increase!

Fortunately for the pound, the pound bulls shrugged off the report and continued to buy the currency on the heels of improving risk appetite in markets.

The question is, how long will the pound’s strength last? No other report is scheduled for release today, but you might want to check out other big-hitting reports coming our way today! Read up on the other currencies, will ya?

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The pound was unable to hold its ground against the dollar yesterday and fell from its 3-month high . The GBP/USD pair ended the U.S. trading session at 1.5819, a good 82 pips lower from its opening price. A look at the pair’s daily chart would show that yesterday’s candle was a bearish engulfing one, hinting that the uptrend could soon reverse.

The pound’s sell-off was the result of traders positioning themselves ahead of today’s interest rate decision (9:30 am GMT). Most market participants, including Forex Gump, expect the central bank to keep rates unchanged but also expand its quantitative easing program.

The current program amounts to 275 billion GBP but due to the fear of a double-dip recession just around the corner, the BOE could increase it by another 50 billion GBP. If the BOE does what the market predicts, we could see the pound sell-off again.

Also watch out for the manufacturing production report. It Is slated to print a 0.3% gain, opposite the 0.2% decrease seen the month before.

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What’s that? More economic stimulus for the U.K.? Tough luck! Except for the yen, the pound weakened against all of its major counterparts yesterday when the MPC voted to boost its government bond purchases by 50 billion GBP. Cable fell from its intraday high of 1.5886 and closed at 1.5817.

In its monetary policy decision yesterday, the Monetary Policy Committee announced that it would buy another 50 billion GBP worth of government bonds within the next few months. Apparently, the monetary policymakers believe that it will be enough to boost economic growth and avoid a recession.

Investors weren’t too impressed though. Aside from already expecting the decision, they also recognize that the U.K. is facing an uphill battle with the euro zone debt crisis and the country’s tight lending conditions.

Not even the positive economic reports were enough to save the day. Yesterday the manufacturing production report showed a 1.0% growth in December, beating estimates of only a 0.3% growth. The country’s trade deficit also narrowed down to 7.1 billion GBP in December, which is a bit better than the 8.9 billion GBP trade deficit we saw in November.

The industrial production report should’ve also cheered the markets up when it printed a 0.5% growth in December after contracting by 0.5% in November. Lastly, the NIESR GDP estimate steadied its 0.2% contraction forecast for January.

For today we’ll only get to see the PPI report coming up at 9:30 am GMT. The key figure is expected to grow by 0.4% in January after falling by 0.6% in December, but make sure you keep your eyes peeled for any surprises!

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The pound took nasty tumble last Friday as risk aversion crept back in the markets. GBP/USD slipped to a low of 1.5730 and closed at 1.5736 while GBP/JPY ended the day 16 pips up from the 122.00 handle.

Economic data from the U.K. came in line with expectations as their PPI input and reports both printed 0.5% upticks. However, this hints that inflation in the U.K. may not be as subdued as the central bank officials projected, as rising producer prices would eventually translate to increasing consumer price levels.

Better stay on your toes for a potential upside surprise during this week’s U.K. CPI release on Tuesday 9:30 am GMT. The report is expected to show a 3.6% annual increase price levels for January, down from December’s 4.2% figure. Also due on Tuesday is the BOE’s inflation letter, which would contain the central bank’s analysis of the U.K.'s most recent CPI figure.

On Wednesday, the U.K.will release its claimant count change report as well as its jobless rate. The number of claimants is expected to reach 3.3K for January, up from the 1.2K seen last December, while their unemployment rate could hold steady at 8.4%.

Last but certainly not least is the U.K. retail sales report set for release on Friday 9:30 am GMT. Spending is expected to be down by 0.3% in January after seeing a 0.6% rise in December. Stay on your toes if you’re trading this week’s reports!

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D’oh! That was so close! Just when we thought that the pound is headed for gains against its major counterparts, GBP/USD fell back down to its 1.5570 open price, while GBP/JPY also inched lower from its 122.94 intraday high to close at 122.34.

Data revealed yesterday showed that the RICS house price balance, an index of property surveyors, remained at a -16% reading in January. This indicated that there were more property surveyors who eased their prices than those who raised them.

Good thing the markets were focusing on the country’s inflation! At 9:30 am GMT today we’ll see the country’s CPI report. If inflation prints weaker than the expected 3.6% price growth in January, then the BOE might have more reason to inject more money in the economy.

Also keep an eye out for the CB leading index at 10:00 am GMT and the BOE inflation letter coming up some time today if the CPI report once again exceeds the BOE’s 3.0% target.

We’ve got some big-hitting reports today, folks, so you better have your trading discipline in place!ruary

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The pound got its heart broken by the Greenback yesterday as GBP/USD started the day at 1.5770 then ended up at 1.5685. Against the yen, on the other hand, the pound was able to score a win as it landed 3 pips above the 123.00 handle.

The pound really took it hard when credit rating agency Moody’s decided to put the U.K. on negative watch for a downgrade as the British government struggles to trim their deficit. Moody’s pointed out that the country’s weak economic standing could further complicate things and undermine the impact of the austerity programs. Talk about Moody’s ruining the Valentine’s Day mood, huh? For more on Moody’s recent announcement concerning the U.K., check out my buddy Forex Gump’s recent article!

As for economic reports, U.K. CPI came in line with expectations and showed a 3.6% annual increase in price levels for January. This was a huge drop from the 4.2% figure seen last December, confirming that inflationary pressures are indeed slowing down as central bank officials predicted. In fact, BOE officials project further declines in the U.K. CPI as weak consumer spending could force stores to offer more sales and discounts.

Today is another big day for the pound as the U.K. is set to report its claimant count change, as well as its jobless rate for January. The number of claimants for the month is expected to reach 3.2K, almost thrice as much as the 1.2K figure for December. Despite that, their unemployment rate is expected to hold steady at 8.4%. Keep an eye out for that at 9:30 am GMT.

Also due today is the BOE inflation report, which should shed some light on the recent U.K. CPI figure and the BOE’s inflation expectations. This report is set for release at 10:30 am GMT, along with BOE Governor Mervyn King’s speech.

With plenty of red flags on tap, it’s bound to be another topsy-turvy day for the pound so hang tight!

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The pound muscled through weak U.K. employment data to bag some pips against its two main counterparts. While GBP/USD crept up 14 pips to 1.5699, EUR/GBP recorded a 42-pip loss on the day as it closed at .8323 after testing the .8400 handle. You can’t keep a good pound down!

Though the U.K.'s unemployment rate remained at its 16-year high at 8.4%, the British currency was able to keep its head above water. Apparently, the labor market saw an increase of 6,900 in the number of claims for unemployment benefits last month, which is more than twice the expected figure. Ouch! Looks like the U.K.'s slump is really doing a number on the labor market, eh?

I suppose this is one of the reasons why BOE Governor Mervyn King sounded so dovish in his speech yesterday. He basically gave the central bank the green light to increase its asset purchase facility in case significant downside risks materialize. And to think, the BOE just increased its asset purchase facility last week! Now, King is considering another expansion?! Yowza!

But there is one thing that might keep the BOE from further easing - inflation! In the central bank’s inflation report, it predicted that it won’t be able to hit its target of 2% in two years, though it did say that there’s an even chance of meeting it within 3 years.

In other news, the Nationwide consumer confidence report just came out, and boy was it a breath of fresh air! After seeing yesterday’s downbeat reports, it was nice to see that U.K. consumer confidence was at a 5-month high in January. The index rose from a reading of 38 to 47, beating forecasts which called for a reading of 40.

No more reports on tap today. In the meantime, I suggest you track developments in the euro zone! Mervyn King sounded worried about the spillover effects of the European debt crisis for a reason!

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Just when it looked like the pound was headed for more losses, risk appetite steps in and saves the day! GBP/USD jumped by more than a hundred pips from its 1.5699 open price while GBP/JPY locked in a 70-pip win when it closed at 124.73.

Stronger than expected consumer confidence data gave the pound a boost yesterday as the index rose from 38 to 47 in January, hitting its 5-month high. Components of the index revealed that the improvement in morale was spurred by falling price levels and the BOE’s loose monetary policy. With that, market watchers grew less concerned about the prospect of weaker consumer spending in the U.K. as the upbeat sentiment could pump up demand later on.

The U.K. has another red flag on its schedule today as it is set to release its retail sales report for January. Analysts are expecting to see a 0.3% decrease in spending, following the 0.6% rise seen last December. Stronger than expected figures could give the pound another boost but if the actual figures miss expectations, the pound might be forced to return some of its recent gains. Keep an eye out for that report due 9:30 am GMT.

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It looks like the pound is picking up where it left off last week! After posting a 28-pip gain against the Greenback last Friday, the British currency gapped up over the weekend and is currently trading at 1.5873, 40 pips above last week’s close. Let’s see if it can sustain its rally!

Last Friday seemed like it was going to be an uneventful day for the pound as GBP/USD began by consolidating throughout the Tokyo session. However, fireworks went off once the retail sales report was released.

Retail sales posted a 0.9% increase last month, which was highly unexpected considering that forecasts called for a 0.3% decline. Talk about a pleasant surprise! This is the largest month-on-month increase since May of last year, and it suggests that street spending is gaining momentum in the U.K.

Still, y’all best keep in mind that one month does not make a trend. It’ll be interesting to see if consumers can keep spending their dough at this rate, in light of the uptrend in unemployment and tough credit conditions in the U.K.

This week, the pound will be one of the most closely watched currencies as the U.K. has a couple big events on the calendar.

We’ll start things off with the Rightmove HPI due at 11:40 pm GMT today. Look for it to show a 4.1% increase following the previous month’s 0.8% slide.

Then at 9:30 am GMT tomorrow, we’ll take a look at the public sector net borrowing report, which is slated to show a deficit of 8.9 billion GBP following the previous month’s 10.8 billion GBP.

Wednesday will reveal the MPC meeting minutes at 9:30 am GMT. I’m sure I’m not the only one interested in what the boys of the central bank discussed when they decided to expand their asset purchase program a couple weeks ago!

We have another potential market-shaker in the revised GDP report due on Friday. Survey says we won’t see any revisions to the previous estimate which indicated a contraction of 0.2%, but remember, these forecasts have been wrong before!

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With no data lined up and U.S. traders still off on holidays, we didn’t see squat happen on the pound pairs yesterday. GBP/USD stuck within range and closed at 1.5848, down just 12 pips from its opening price. Meanwhile, GBP/JPY formed a nice doji on its daily chart, as it finished at 126.18, just 8 pips lower on the day.

Trading was pretty tight, as traders were still awaiting the decision of EU finance ministers regarding the Greek debt deal. For the most part, many believe that the deal will push through, which means that we could see an improvement in risk sentiment this week. On the other hand, if they do hit a few snags here and there, we could see some really crazy moves, so be careful trading out there!

For today, we’ve got public sector net borrowing figures on tap at 9:30 am GMT. Expectations are that government corporations posted a surplus of 8.9 billion GBP last January, which would be a complete turnaround from the 10.8 billion deficit we saw in December.

Take note that the U.K. recently got tagged by Moody’s, who warned about the British government’s mounting debt. Should we see a worse-than-expected release later, we could see a strong sell-off in pound pairs.

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Tough luck, pounds bulls! Though yesterday’s public sector net borrowing report was supportive of a pound rally, the currency just couldn’t get off the ground. It ended weaker against both the dollar and the euro as GBP/USD slid 66 pips while EUR/GBP rose 38 pips on the day.

You would’ve thought that the pound would be able to bag a few pips here and there after the public sector net borrowing report showed a decrease of 10.7 billion GBP last month, outclassing forecasts which called for borrowing to be cut by 8.9 billion GBP. After all, it just goes to show that the U.K. is actually following through with its austerity measures, which suggests that it’s on track to improving its finances. However, this report did little to overcome to overall bearish sentiment in the markets yesterday.

Today, we have the latest MPC meeting minutes due for release at 9:30 am GMT, and I have a feeling it could be a juicy one! Remember, in its last monetary policy statement, the central bank decided to increase its asset purchase facility. The minutes of their meeting could very well reveal what’s in the cards for the U.K. down the line.

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Thanks to some rather dovish MPC meeting minutes, the pound took a back-alley beating across the charts yesterday. GBP/USD crashed back down to the 1.5700 handle after retesting 1.5800 earlier in the day, while EUR/GBP finally broke through tough resistance at .8400.

As it turns out, the decision to raise the Bank of England’s asset purchase facility by 50 billion GBP wasn’t unanimous. Apparently, two members – David Miles and Adam Posen – were actually in favor of boosting QE measures by a total of 75 billion GBP. Other members of the committee felt however, that it was unnecessary and that it would signal that the current environment was worse than it really was.

In any case, this just goes to show that some members are open to more bond purchases and this sent the pound into a nosedive versus its major counterparts.

For today, we’ve got some second tier reports lined up in the form of the mortgage approvals (9:30 am GMT) and industrial trends survey (11:00 am GMT).

Mortgage approvals are projected to have risen to 36,250 in January, up slightly from the 36,170 we saw in December. Meanwhile, the industrial trends survey is expected to have improved slightly from -16 to -13. If these reports come in worse-than-expected, it could mean further losses for the pound today.

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While the pound was able to score a 65-pip win against the dollar when GBP/USD closed at 1.5733, it gave up 46 pips to the euro as EUR/GBP ended the day at .8499. From what I’ve heard, it was another case of “loose lips, sink pips.”

BOE member David Miles expressed his concern about the economy saying that there has barely been any recovery. He also added that the central bank has to remain on its toes and maintain a loose monetary policy to stimulate growth. Boo!

Of course, those dovish remarks weighed down on the pound. But luckily, it wasn’t all bad for the currency yesterday as the reports we had from the U.K. topped expectations.

The BBA mortgage approvals for January came in at 38,100. It was only expected that 37,300 new mortgages were approved during the month. Also, the CBI industrial order expectations for February clocked in at -3 and beat the -14 forecast which means that manufacturers don’t really expect that big of a decline in the volume of orders.

Yesterday’s roster of economic data must helped fuel the pound’s rally against the dollar. With that said, be sure you don’t miss the reports we have scheduled from the U.K. too.

At 9:30 am GMT, the revised GDP report for Q4 2011 will be released and no revisions from the initial reading of -0.2% is anticipated. Along with that, preliminary data on business investment for the same quarter will also be on the docket. Capital investment made by businesses and the government is expected to have declined by 0.3%.

Better-than-expected figures will probably be bullish for the pound, so watch out!

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Churn and burn em’ baby! The pound killed the markets Gordon Gekko style last Friday, posting huge gains versus the dollar and yen. GBP/USD rose 166 pips to finish near its highs at 1.5899. Meanwhile, GBP/JPY posted a massive 302-pip gain to finish at 128.78. Woooo!

It seems that the markets forgot about the BOE meeting minutes, which revealed that two members were actually in favour of an even bigger increase in asset purchases. We also overall yen weakness and an improvement in risk sentiment as factors that helped the pound rally on Friday.

As for hard data, revised quarterly GDP figures came in as expected and posted a 0.2% decline for the fourth quarter. Take note that this is the second version of the report, so let’s see if there will be any revisions when the final version is released.

We’ve only got a couple of second tier reports coming out over the next few days in the form of the CBI realized sales index (Tuesday) and net lending to individuals figures (Wednesday). Watch out later in the week though, when manufacturing and construction PMI reports hit the deck.

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Where’d all the risk-takers go? Yesterday, the pound joined its higher-yielding counterparts in sustaining losses against the Greenback. GBP/USD traded lower after opening at 1.5888, all the way down to end the day at 1.5819.

The lack of economic data from the U.K. left the pound vulnerable to market sentiment. And unfortunately for pound bulls, it seems like concerns about the euro zone dampened risk appetite once again. (You can check out my EUR commentary for more details.)

We’ll probably see market sentiment dictate the pound’s price action today too. Our forex calendar only lists the CBI Distributive Trades report for February as the only economic data due to be released today at 11:00 am GMT. It’s not a tier-1 report, but a figure better than the expected -12 reading may help keep the pound afloat if risk aversion kicks in, so watch out!

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Thanks to the European Central Bank (ECB)’s refinancing operation prospects, the GBP/USD was able to stage a spectacular rally yesterday. The pair closed the day at 1.5897, a solid 78 pips higher from its opening price during the Asian trading session.

Of course, I’m talking about the ECB’s long-term refinancing operations, or LTRO. The ECB’s plan is to grant euro zone banks a second round of funds totaling around 470 billion EUR to increase market liquidity this week. This is in addition to the 489 billion EUR they offered in the December refinancing operation.

The positive result on U.K.’s distributive trades survey also supported GBP/USD’s rally. It came in with a reading of -2, significantly better than the -17 initially predicted.

Today, U.K’s economic calendar has two important events lined up. The first one is the Net Lending to Individual report at 9:30 pm GMT. It is expected to rise to 900 million GBP from the previous month’s 400 million GBP.

The second one is the Bank of England (BOE) Governor Mervyn King’s quarterly inflation report. He is scheduled to testify in front of the British parliament at 9:45 and talk about the economic and inflation outlook of the country. Be sure to catch this event, as this normally has a strong impact on price action.

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Guess who got lucky on leap day? The pound! While other higher-yielding currencies fell victim to risk aversion, the pound was able to remain resilient and ended the day with a 12-pip gain against the dollar. I know that’s not much, but hey, a win is a win!

Meanwhile, against the euro, the currency was able to rally to close the day’s trading with a 95-pip win at .8374.

Federal Reserve Chairman Ben Bernanke’s surprisingly not-so-dovish testimony had investors going loco for the dollar as the ECB’s 529.5 billion EUR LTRO sparked risk aversion. Luckily for the pound, it had positive data in yesterday’s trading that kept it from scoring losses. Whew!

The BOE reported that net lending to individuals for January amounted to 1.8 billion GBP and doubled the measly 900 million GBP forecast. Mortgage approvals also topped expectations when in came in at its two-year high at 59,000 while analysts had only predicted that 54,000 loans were issued during the month.

But don’t get too excited about the U.K.'s improving fundamental landscape just yet. The GfK Consumer Confidence index for February came in lower at -29, lower than the -27 reading that markets were bracing for.

It would do us well to just be cautiously optimistic of the British economy and be on our toes for more economic reports to help us gauge which direction it’s headed. We can start off today by staying tuned to the Nationwide HPI for February which is due to be released at 7:00 am GMT. Keep in mind that the report is anticipated to show a 0.3% uptick in the selling prices of homes. Then at 9:30 am GMT, the manufacturing report for the same month is eyed to come in at 51.9.

Better-than-expected figures may just spare the pound from the wrath of sellers so watch out!