Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
771

Though the U.K. reports we got yesterday weren’t exactly bull-friendly, the pound was able to chalk up decent gains against the dollar. Cable began its rally at the very start of the day, and by the end of the New York session, it had reached 1.5643 for a 70-pip gain on the day.

Public sector net borrowing rose to 15.6 billion GBP last month (2 billion GBP more than expected), as the government racked up debt to make up for a shortfall in income tax collections and an increase in spending. Hmm… Now that ain’t exactly what you want to see from a country that’s supposedly trying to cut its debt! If this keeps up, Chancellor George Osborne will have a hard time meeting his austerity target this year!

Meanwhile, the inflation report hearings brought grim news as BOE Governor Mervyn King declared that economic conditions have worsened in the U.K. in light of the euro zone debt crisis. Aye caramba! According to King, he was “struck by how much has changed” since the last time the BOE produced its inflation report.

But apparently, it ain’t just the euro zone that has King worried. He said he’s particularly concerned about worsening conditions in Asia and other emerging markets. He even added that the central bank hasn’t ruled out a possible move to slash interest rates to boost the economy.

Today, we only have a couple of second tier reports on tap. First up is the BBA mortgage approvals report due at 8:30 am GMT. Look for mortgages to rise from 32,400 to 32,800 in May. Then at 10:00 am GMT, CBI realized sales data will be released. According to forecasts, the index will probably record a fall from 21 to 12 for the month of June.

772

It was rough sailing for Lady Cable yesterday, as it gave back all its gains versus the dollar. GBP/USD dropped 77 pips to finish at 1.5566. Is the pound in for more losses today or can the bulls make a comeback?

Mixed data may have been cause for the pound’s downfall yesterday.

The British Banking Authority released a report that indicated that the number of mortgage approvals for last May came in at just 30,200. This was worse than the projected figure of 32,800, and a significant drop from April’s pace of 32,100.

This is indicative of two things. First, that not as many consumers are qualifying for mortgage loans. Second, those who do qualify are holding back on adding any additional debt.

On the flip side, the CBI realized sales report printed much higher than expected, coming in at 42. It was projected to have a score of just 12. This means that more retailers reported higher sales in the past month.

If the report came in that much better-than-anticipated, why didn’t the pound rally?

Apparently, the CBI believes that the figures are a fluke and may have been distorted by additional holidays over the past month. We’ll have to wait till next month’s release to see whether this is true or not.

For today, we’ve got a whole slew of data headed our way during the London session.

First, more housing data in the form of the Nationwide HPI will be available at 6:00 am GMT. Word on the street is that housing prices rose by 0.3% in the past month.

Later on at 8:30 am, we’ve got a trio of reports headed our way.

The current account is expected to show a deficit of 8.9 billion GBP. No surprises here, the account has been in the red since mid 2003!

The Bank of England will also be releasing its credit conditions survey, which should help provide more insight into the state of British lending. If it shows that credit conditions are deteriorating, it would simply be in line with other data that we’ve received lately.

Lastly, the final quarterly GDP report is projected to show no changes from the previous release, which indicated that the British economy dropped by 0.3% last quarter.

If all these reports come in weaker-than-expected, it could trigger another pound sell-off midway through the London session.

Phew, that was a long one! Good luck trading today homies!

773

Risk aversion and weak U.K. data did a real number on the pound yesterday as they teamed up to drag the British currency down the charts. GBP/USD hit a new two-week low as it slid 52 pips to 1.5514.

Sellers took full control of GBP/USD once the market caught sight of yesterday’s downbeat U.K. data. Not only did the U.K. post a wider-than-expected current account deficit of 11.2 billion GBP (versus forecasts for 8.9 billion GBP), but it was also confirmed that the economy shrank 0.3% in Q1 2011. What’s worse is that apparently, the U.K. slipped into recession earlier than previously thought!

Hmm… It seems the case for more QE has strengthened, as more and more analysts think we’ll see some sort of easing in the BOE rate decision next week. A survey of economists actually reveals a 75% chance that the central bank will bump up its asset purchase program by another 50 billion GBP.

It’ll be quite interesting to hear what my homeboy, BOE Governor Mervyn King has to say about all this as he’s expected to hold a press conference alongside the release of the BOE financial stability report at 9:30 am GMT. If the central bank head speaks dovishly and hints about more QE, it could very well trigger another strong round of pound selling!

774

Nothing like a shot of good news to spruce up risk appetite! Thanks to a positive reaction t oteh EU summit, the pound bulls went wild like it was a Beatles concert, boosting the pound to new highs. GBP/USD rose a whopping 217 pips to finish at 1.5661, while GBP/JPY closed 194 pips higher at 125.19.

It turns out that Mervyn King’s speech became a non-event, as it was overshadowed by the results of the EU summit. Despite the rosy sentiment in the markets, King still warned banks about potential hurdles down the road and urged banks to shore up their capital. According to King, this should be a higher priority than paying out cash reserves in the form of dividends or giving out big bonuses. I gotta admit, he makes an excellent point!

For the next three days, we’ve got a slew of purchasing manager’s indexes coming out, starting with the manufacturing PMI due today at 8:30 am GMT. The index is projected to have increased slightly from 45.9 last month to 46.6 for this month’s reading. If the index comes in even higher than anticipated, it could trigger another round of pound buying today.

775

Pound bulls sure know how to put on a good show! GBP/USD traded lower during the Tokyo session and tapped an intraday low at 1.5641. Then the bulls started to step up their game and hustled the pair past resistance at the 1.5700 to end the day 18 pips above its opening price at 1.5721.

The pound struggled a bit in yesterday’s trading as traders started to become wary about the EU leaders’ plans to address the debt crisis. Good thing the U.K.'s manufacturing PMI report topped expectations and gave the currency just enough support for it to end the day with a win.

Government data revealed that the U.K.'s manufacturing sector did not contract as much as analysts expected in June. The manufacturing PMI printed at 48.6 versus the 46.6 consensus.

However, despite the better-than-expected figure, some market junkies warn that you shouldn’t get too excited about the report as it translates to the second month of contraction for the sector. (A figure over 50.0 would’ve meant that the manufacturing sector expanded during the month.) Just something to keep in mind!

Today, our forex calendar lists a few reports for the pound and all of them are due at 8:30 am GMT.

Perhaps the construction PMI will have the biggest market impact from today’s roster, so remember that the consensus is for the report to come in at 52.9 following the 54.4 reading for May. Along with it, the BOE will also release its data on new credit issued for May. The forecast is for net lending to individuals to have amounted to 1.1 billion GBP. Lastly, we’ll also get the number of new mortgages approved in May and it is anticipated to come in at 51,000.

If you’re looking to buy the pound today, keep your fingers crossed for better-than-expected figures. However, if you’re planning to sell the currency, watch out for disappointing numbers. Good luck!

776

Not too much action on pound pairs yesterday, which pretty much traded within their daily ranges. GBP/JPY struggled to break above its weekly open price at 125.30, while GBP/USD finished slightly lower at 1.5690, just 30 pips below its opening price.

We got mixed results on the economic data, as the construction PMI and net lending to individuals reports had contrasting releases.

The construction PMI came in much worse-than-expected, printing at 48.2, after it was projected to come in at 52.9 This marks the first time since January 2011 that the index has printed in the red and indicates potential contraction in the construction industry.

On the other hand, credit conditions seem to be better than initially estimated, as consumer loans amounted to 1.3 billion GBP last month, which is slightly higher than the anticipated 1.1 billion GBP figure. Hopefully, credit conditions continue to hold up and we see more lending and spending take place in order to boost the U.K. economy.

For today, all we’ve got on our plates is the services PMI, due at 8:30 am GMT. According to our trusty economic calendar, the index is projected to print at 52.9. If we see the report come in much better-than-expected, it could give the pound a slight boost up the charts!

777

Look down below! The pound dropped like a rock in yesterday’s trading following the disappointing data that were released from the U.K. GBP/USD closed the New York session 100 pips below its opening price at 1.5590. Meanwhile, GBP/JPY ended the day at 124.51 after opening at 125.24.

The services PMI, considered as a leading indicator of economic health, came in at 51.3 for June. Unfortunately for pound bulls, analysts higher expectations, predicting it to come in at 52.9 following its 53.3 reading for May.

We’ll probably see more action in GBP pairs today too, given that the BOE is set to announce its interest rate decision at 11:00 am GMT.

Keep in mind that expectations are for the central bank to keep interest rates steady at 0.50% but increase its asset purchase program by 50 billion GBP to 375 billion GBP. Some market junkies say that the recent string of weak economic data along with lower inflation pressures in the U.K. could be enough reason for the BOE to stimulate the economy even more.

Should BOE Governor Mervyn King announce a bigger increase in the bank’s asset purchase program, we could see the pound get sold off. However, if central bankers decide against any increase, the pound could rally. So be on your toes for the announcement, ayt?

778

Time to rev up the presses – the Bank of England is about to print more moolah! With the BOE adding yet another 50 billion GBP to its stimulus efforts, the pound stood no chance against the Greenback and the yen. What the heck is the BOE up to?

Though the central bank held its interest rates steady at 0.50%, the Monetary Policy Committee decided to give momentum to the U.K. banks’ liquidity by adding 50 billion GBP worth of stimulus. The move came at the tails of the BOE’s latest efforts at easing bank liquidity.

The news didn’t set well with investors, who thought that the BOE could’ve implemented other methods with less inflation risks. Not only that, but the BOE’s actions also hinted that more help might be needed in order to rise above the economy’s double dip recession. Cable capped the day 72 pips lower, while GBP/JPY also suffered a 50-pip fall.

Only the PPI input and output data are scheduled for release today, and both reports are expected to maintain their previous growth rates. Keep an eye on risk sentiment though, as traders could continue to price in interest rate cuts made by the PBoC and the ECB.

Good luck in your trades today!

779

There was certainly no partying for the pound bulls last Friday. GBP/USD closed the day 37 pips lower at 1.5487 while GBP/JPY was down 70 pips at 123.30. It wasn’t all bad though! Against the euro, the pound rallied to its 44-month high at .7925 before closing the day with a 49-pip win at .7931.

It’s easy to say that the pound lost to the dollar and the yen because of the worse-than-expected PPI report on Friday. (Prices of raw materials that manufacturers pay for dropped by 2.2% in June and disappointed the market’s -2.1% forecast.) After all, soft inflation figures could give the BOE more reason to remain dovish, right?

However, like all other higher-yielding currencies, I think that the pound’s performance was primarily driven by the disappointing NFP figures that sparked risk aversion in the markets.

Today, our forex calendar is blank for market-moving reports from both the U.K. and the U.S. If you’re thinking of trading the pound, it might do you well to keep tabs on market sentiment as it could continue to dictate the currency’s price action in today’s trading. Good luck!

780

When there’s a will, there’s always a way! Despite gapping down to start the week, the pound managed to slowly edge higher throughout the day. GBP/USD closed the U.S. trading session at 1.5475, 57 pips higher from its opening price.

Even though the pound was able to rally slightly yesterday, weakness will most likely endure in the near-term as investors remain doubtful of the Bank of England (BOE)'s recent stimulus moves. Data released earlier today showed a frail housing market. The RICS House Price Balance showed more property surveyors reported a decline in the selling prices of houses.

Today, at 8:30 am GMT, the U.K. will release its Trade Balance and Manufacturing Production Report. The Trade Balance is anticipated to show a 9 billion GBP deficit while the Manufacturing Production report is expected to print a 0.1% rise. Both these reports can have a strong impact price action, so it’s important to keep a close eye on them.

781

The pound bulls and bears had a battle royale yesterday as they priced in risk aversion in markets and strong U.K. data. Cable and Guppy both slipped by a couple of pips, but the pound went up against the euro and the franc. What’s in store for the U.K. today?

Aside from pictures of Queen Elizabeth II watching the Olympic torch relay at Windsor Castle, I don’t see anything else happening today. No data is scheduled for release, so traders could still get support from yesterday’s reports.

If you remember, both manufacturing and industrial production reports blasted above expectations. Manufacturing in the U.K. rose by its fastest pace in a year with a 1.2% growth against -0.1% expectations, while industrial production also rose by 1.1% when market geeks were only expecting the figure at 0.1%.

Even the trade balance data gave the pound bulls good vibes. Thanks to growth in the exports sector, the U.K.’s trade deficit shrunk from 9 billion GBP to 8.4 billion GBP. Not a bad day for the U.K., eh?

Since economic boards are empty today, you might want to keep an eye out for other major news from the euro zone and the U.S. that might trigger another selloff. As I mentioned in my EUR piece, the battle over the approval for the ESM is heating up!

782

Due to the absence of tier 1 data in the U.K., the pound was unable to pick a single direction versus the safe haven dollar yesterday. GBP/USD, which had begun the day at 1.5520, climbed as high as 1.5579 before closing the U.S. trading session at 1.5502.

It’s important to note, however, that the pound performed magnificently against the euro. It made a new 4-year high as traders continue to use the pound as “European safe haven currency.”

Just like yesterday, U.K.’s economic calendar today has major in store. It’s absolutely devoid of economic data, which means the pound will probably be driven by events happening elsewhere. The U.S. initial unemployment claims, for instance, could indirectly boost the pound if it comes in better than expected and stokes risk appetite.

783

Better call your cable guy, because Cable is down for the third day in a row! Okay, that was a corny one, but it’s true nonetheless! GBP/USD fell for the third consecutive day yesterday, clocking in a 68-pip loss after hitting an intraday low at 1.5393. What gives?

It’s not due to U.K. economic reports, that’s for sure. No data was released from the country yesterday, so the pound’s price action was mostly dictated by risk appetite.

And we all know how that went! Thanks to escalating concerns of global economic slowdown, high-yielding currencies like the pound pared some of its gains against their lower-yielding counterparts.

Will the pound have a chance at sneaking in some pips today? Only the CB leading index out at 9:00 am GMT is scheduled for release, so you might want to pay attention to the euro zone, the U.S., and even China for any news that might affect risk sentiment.

Good luck and good trading, folks!

784

Who ya callin’ a loser? The pound rallied by nearly 200 pips against the Greenback and pocketed more than a hundred pips against the Japanese yen last Friday, more than enough for both pairs to end the week in the green. What caused the rally and what are the odds of seeing another one this week?

Although the U.K. didn’t release any major economic reports last Friday, a report showing that BOE policymaker Adam Posen who used to lobby for further central bank stimulus shifted his stance to a more neutral one. Apparently, he is already happy about the BOE’s recent easing efforts which involved increasing their asset purchase program. Now that’s big news considering Posen used to be extremely dovish in the past!

On top of that, weaker than expected U.S. consumer sentiment data put talks of QE3 back on the table, allowing the pound to take advantage of U.S. dollar weakness.

This week is bound to be an exciting one for the pound as the U.K. economic schedule is filled to the brim with top-tier releases. First up are the CPI reports due Tuesday which are expected to show a slight downturn in both core and headline inflation for June. On Wednesday, the U.K. has the claimant count change report on tap along with the release of the MPC meeting minutes. Then, Thursday has the retail sales report while Friday has data on public sector net borrowing on tap.

For today, only the medium-tier Rightmove HPI is on the U.K.'s agenda and this report showed a 1.7% drop in house prices. This was significantly weaker than the 1.0% increase seen last month, indicating that home sellers are slashing prices to spur demand. No other reports are set for release over the next few hours so make sure you keep close tabs on market sentiment to figure out where pound pairs are headed!

785

Who’s up back-to-back against its counterparts? The pound is! Cable rose by another 59 pips to 1.5636, while EUR/GBP dropped to a new 2012 low at .7852. What’s spurring on the pound bulls?

Not the U.K.’s economic data, I bet. Aside from the Rightmove data that I mentioned yesterday, no other economic report came out from the U.K. But thanks to QE3 speculations and weak euro zone prospects, the currency bulls gave the pound some lovin’.

Today the pound traders’ focus will turn to the inflation number and house price index released at 8:30 am GMT, followed by BOE Governor Mervyn King’s speech at 9:00 am GMT.

Market bees are buzzing that the low producer and retail prices reported earlier this month hint at a soft inflation, but keep an eye out for any surprises! A soft inflation would justify the BOE’s additional stimulus injections, while a high inflation could fuel uncertainty over the central bank’s liquidity options.

Good luck trading today, folks!

786

The pound had quite the tussle with the Greenback yesterday as GBP/USD spent the Asian and London sessions crawling towards the 1.5550 area then staged a strong rebound during the U.S. session. GBP/JPY was also able to recover at the end of the day as it closed at 123.78.

Weaker than expected U.K. inflation data dragged pound pairs down during the London session, as the reports suggested that the BOE has enough room for further stimulus. The annual CPI figure came in at 2.4%, which was below the consensus at 2.8% and the previous reading also at 2.8%. The retail price index also missed expectations of a 3.0% increase and came in at 2.8% while core CPI showed a mere 2.1% increase instead of the projected 2.3% rise in core price levels.

Luckily for the pound, Fed head Bernanke’s testimony triggered a sharp rally during the U.S. session as the central banker steered clear of any QE3 remarks. Make sure you drop by my U.S. economic commentary to read the rest of the details on his speech!

Today will be another busy one for the pound as the U.K. is set to release its claimant count change data as well as the MPC meeting minutes. The total number of claimants for June are expected to reach 6.2K, which is slightly less than the 8.1K reading last May, suggesting a bit of an improvement in the U.K. labor market.

Meanwhile, the MPC meeting minutes are expected to shed light on the BOE’s recent decision to increase asset purchases and whether we can expect more of those or not. Make sure you keep close tabs on the releases at 8:30 am GMT because these could rock the pound’s world today. Buckle up, fellas!

787

What a close call! The pound almost ended the day weaker against the Greenback as sellers took control of GBP/USD after the release of dovish MPC meeting minutes. But somehow, buyers were able to push the pair back up the charts in the U.S. trading session, forcing price to close 5 pips higher on the day at 1.5653.

It seems more policymakers are jumping on the EASY train! The latest meeting minutes revealed that of the 9 voting MPC members, 7 voted to ease monetary policy further and expand asset purchases by 50 billion GBP. Apparently, they even considered slashing interest rates despite the fact that rates are already at a record low of 0.50%! I don’t know about you guys, but I think this just goes to show how worried the Bank of England is about the economy.

In other news, employment stats for June fell broadly in line with expectations, registering an increase of 6,100 in unemployment claims versus the 6,200 uptick. Meanwhile, jobless claims in May were revised down from 8,100 to just 6,900. In turn, this took the unemployment rate down from 8.2% to 8.1%, a new 9-month low.

Today, we’ve got more hard hitters on tap as the U.K. is set to publish retail sales data. After posting a solid 1.4% surge in May, sales growth is expected to temper to just 0.6% in June. But remember, you can never count out an upside surprise! Tune in at 8:30 am GMT because another solid pound rally could be right around the corner, homeboys!

788

Boy, did the pound feel like a boss in yesterday’s trading. Despite weaker-than-expected retail figures, it was still able to end the day higher against the dollar. GBP/USD closed 70 pips above its opening price at 1.5723.

Data released from the U.K. showed that consumer spending only grew by a measly 0.1% in June. The figure fell short of the market’s 0.6% forecast to follow the 1.5% reading for May.

But why was the pound still able to rally? A deeper look at the report reveals that weather weighed heavily on spending. It is said that June 2012 was the wettest June that the U.K. experienced since 1910, keeping shoppers away from stores.

Consequently, that may have been enough reason for traders to overlook the disappointing headline figure and just focus on the not-so-dovish MPC Meeting Minutes.

For today, data on public sector net borrowing will be on tap. Watch out for the report and keep in mind that it is expected to print at 11.8 billion GBP. A figure higher than the forecast would indicate a bigger budget deficit and may be bearish for the pound.

789

Judging by the pound’s sorry performance against the dollar last Friday, it seems as though pound bulls have lost their groove! Sellers took GBP/USD down over 100 pips to force the pair to end the week just above the 1.5600 handle. What gives?

Well, risk aversion probably had a hand in the pound’s big slide, as we saw the dollar rise like the Dark Knight against most of its major counterparts. Meanwhile, the pound was able to gain a few pips against the euro, which just goes to show that against the shared currency, the British pound remains a better choice in times when risk is off.

Nothing important coming out of the U.K. today, but if you’re waiting for news to trade, you’ve got the preliminary GDP report coming your way on Wednesday at 8:30 pm GMT. Most analysts see the economy recording a contraction of 0.2% for Q2 2012.

Now remember, the U.K. already fell into a technical recession when it recorded its second straight quarter of contraction in Q1 2012. If it posts another negative figure, its recession won’t just be “technical”… it’ll be legit yo! And this, in turn, could send the pound waaay down!

790

Rough day for the pound, as it not only lost against the dollar, but the slumping euro as well! GBP/USD dropped for the second consecutive day, closing 87 pips lower at 1.5523. Meanwhile, EUR/GBP recovered some of last week’s losses to finish at .7817, up 58 pips from its opening price.

To be honest, I’m a little surprised with the pound’s struggles versus the euro yesterday. After all, the pound has been straight up schooling the euro in July. Nevertheless, yesterday’s move may prove to be a much needed retracement after the steep decline we’ve seen the past couple of weeks.

For today, we’ve got the British Bankers’ Association mortgage approvals report coming in at 8:30 am GMT. No big changes are expected from the past few months, as approvals are anticipated to trickle in at 31,400. I don’t quite see this being a mover during today’s London session.

Instead, keep a close eye on those Spanish bond yields. They just hit 7.5% yesterday, and if we see similar figures today, it could lead to another run of risk aversion in the markets.