Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
62

Now I get it why the Sterling was also called the ‘pound.’ Why? Because that�s what exactly happened… It got pounded. There was no stopping it from falling against the greenback in last Friday�s session. It never looked up as it fell from 1.6432 to 1.6226. Will it stage a rally? Or will it continue to slide further?

UK�s public sector net borrowing rose �16.1 billion in August from �9.9 billion a year before. This brought government�s deficit to �12.8 billion, with a net total of �804.8 billion in debt, which is about 57.5% of the country�s GDP. The account�s outcome does not have a uniform effect on the pound because of its debt and investment implications. In last Friday�s case, the pound rose slightly following the report before eventually falling further.

Today, External BOE MPC Member Andrew Sentence will deliver a speech at the Department for Business, Innovation and Skills Conference, in London. Any hawkish statement would give the GBP a much needed support.

On September 23, the BOE will release the details of its MPC meeting minutes. The account outlines the bank�s most recent meeting regarding UK�s economic conditions. Remember that recently, the BOE announced that it may cut its reserve rates to further enhance the liquidity in the market. The report will provide the market participants with itemized factors behind the bank�s latest decision and/or plans.

No other top tier events are scheduled in the UK this week. Any downbeat sentiment regarding the UK�s economy could hurt the pound more.

63

The pound started the week from where it left off last Friday � losing against the dollar. After the Bank of England�s pessimistic outlook on the economy last week, it seems that traders really don�t find any value for the pound at its current price levels.

Yesterday, more pessimistic commentary came from Andrew Sentance, an external BoE Monetary Policy Committee member. He said that UK�s recovery might be at risk from the climbing prices of energy. He adds that the likely follow up to global recovery � energy price hikes and rising global emissions � could put some downside risk on UK�s journey to recovery.

The GBPUSD opened Asia at 1.6253 and closed the US session slightly lower at 1.6209. It looks like 1.6000 is a realistic target for the bears if UK’s fundamentals continue to weigh down the pound.

No economic data due for today but expect to see the MPC meeting minutes tomorrow at 8:30 am GMT. Historically, the report has produced some volatility swings in price action in the past so watch out for that!

64

And the pound comes roaring back! The GBP bounced back yesterday, after it had been taking several hits the past couple of trading days. The GBPUSD pair rose and closed US at 1.6370, up 161 pips from its Asian open price! The question is, with tons of data coming out today, can the GBP sustain these gains?

Later today, we�ve got the minutes of the latest MPC meeting on deck at 8:30 am GMT. Let�s see if some MPC members, including Governor Mervyn King, would make cat calls for further quantitative easing measures. I�d be on the lookout to see whether other members of the board have become more amendable to the idea. If so, we might just see the pound weaken further…

Also at 8:30 am GMT, we�ll be getting some housing data as the BBA mortgage approvals report will be handed out. It is expected that the number of mortgages approved increased in August to 41,100, up from July�s figure of 38,200. If we do see such an increase, it might ease some concerns over the state of the credit market. My buddies over at the other side of the Atlantic have been telling me that it�s just so hard to get a loan from banks nowadays. So, if we do see a much better figure from this report, we could see a temporary boost in the pound.

I�d be on the lookout today as several purchasing managers index reports will be coming out from Europe today. If data does come in line with expectations, we could see optimism rise. However, given the pound has been suffering because of underlying weakness in UK fundamentals, this might lead to another surge in the EURGBP pair, which is already hitting 5 month highs. Also, we�ve got the US Fed�s FOMC statement coming up during the US session � I expect that we could see a lot of noise following this report. Be careful trading Cable today � you might just get pounded!

65

The pound let out a sigh of relief as the monetary policy committee voted unanimously to leave rates and their quantitative easing measures at their current levels. The optimistic US FOMC statement also pushed the GBPUSD to trade above the 1.6400 level. However, the GBPUSD erased some of its gains when the USD reversed its course at the end of the US session.

All nine BOE policymakers voted to keep rates at 0.5% and their asset purchase program at 175 billion GBP. But the prospect of further easing is still not off the table… Those who voted for a 50 million GBP QE expansion in August believed that they could still justify the case for further stimulus but there weren’t any significant signals that required a policy adjustment as of the moment. The committee members noted that the short-term downside risks to economic growth have lessened over the month and that short-term inflation could increase more than they initially projected. However, they maintained their cautious mood in saying that longer-term inflation could remain unchanged because of the large amount of spare capacity in their economy.

Meanwhile, BBA mortgage approvals came up with a downside surprise, posting a 38.1K reading for August. This is way below the consensus at 41.1K and is slightly lower than July’s 38.2K in mortgage approvals. Nonetheless, the GBP was able to rake in some profits when the FOMC statement was released. The overall sentiment of the statement was optimistic, saying that economic activity continues to improve. This caused a surge in risk appetite, driving the USD lower. Just before the US session came to a close, the USD got back on its feet and recovered some of its losses.

No upcoming reports are expected from the UK until the end of the week. For today, monetary policy committee member Spencer Dale is scheduled to deliver a speech at the Chamber of Commerce at 12:15 pm GMT. His speech could echo the statements made by the policymakers during their latest meeting so… no surprises there. What could cause some volatility for the GBPUSD is the release of the US weekly employment claims and existing home sales data. With both indicators expected to post improvements, would we see risk tolerance extend its stay in the markets?

66

The Pound got blitzed several times by the Green Back-ers at yesterday�s Rose Bowl. They were simply out muscled, outsmarted, and outclassed. The result? A 325 pip touchdown!

The lack of economic reports in the UK yesterday did not save the pound from slumping. Pound weakness was felt all throughout the euro session. Not even a hawkish note by MPC member Spencer Dale was able to support the pound. In his speech at the Chamber of Commerce, he mentioned that the UK improved due to the government and BOE�s massive stimulus measures plus the weakening GBP. Based on the recent data, he sees a growth in the economy by the end of 2009. He, however, noted that full recovery will be slow and protracted.

In the meantime, US existing home sales in August unexpectedly pulled back to 5.10 million units from 5.24 million. Aside from the labor market, stabilization in the housing market is a huge key in the US�s road to recovery. The drop in sales brought the equities markets to fresh lows, causing market participants to run back to the safety of the USD.

The cable closed at 1.6064 from an opening price of 1.6358.

No top tier events are scheduled in the UK today. In the US, both headline and core durable goods orders are seen to slow. New home sales are also due. Will we see a similar decline in new home sales given yesterday�s surprise drop in existing sales account?

67

The pound posted major losses across the boards versus most currencies yesterday as Governor Mervyn King of the BoE indicated that the weak pound was very helpful for their economy. It seems that traders are beginning to unwind all their �risk-driven� pound trades from a few weeks back.

The main catalyst of the �sell-the-pound� trend was when the BoE announced that it would commit another 25 billion pounds to quantitative easing to encourage banks to lend more. Experts said that lending in UK remains to be tight and that commercial banks were not passing on ultra-low borrowing costs to consumers. Since then, bears just kept on selling the currency every retracement.

Nothing important on UK�s economic calendar today but we have a lot of high-impact data due for release so we might see some serious moves once again this week.

Tomorrow, at 8:30 am GMT, expect to see the country�s current account for the second quarter of 2009. With the pound�s current levels, the current account balance deficit probably eased to -7.7 billion pounds from -8.5 billion pounds the quarter prior. Also on the same day is the CBI realized sales report for September. The forecast is a reading of -15, slightly lower than last month�s -16 figure.

On Thursday, the big report is the manufacturing PMI at 8:30 am GMT. The index for this month is anticipated to improve to 50.2 from 49.7 in August.

Lastly, on Friday, the Nationwide HPI is due. Home prices are seen to have increased by 0.9% this month as consumers pick up spending.

68

The pound got dropped after getting hit by a market haymaker early in the Asian session, before bouncing up midway through the day. The GBPUSD pair hit a new low at 1.5771, a level it hasn�t touched since early June. Cable recovered on a standing 8 count and finished the round at 1.5881.

Our buddy Alistair Darling, the Chancellor of Exchequer, asked banks to refrain from handing out �automatic bonuses�. He said that the government plans to pass laws that will limit bankers from taking short term profits at the risk of long term success. He also said that the rich may have to pay more taxes in order to help the country.

Interestingly, some believe that Prime Minister Gordon Brown is using this �bank-bashing� strategy in order to win over voters, more specifically those in the middle class. As it is, Brown and his party are suffering at the polls. Could this be a sign that the people are losing confidence in Brown? If we see some political turmoil stem from this, we could see the cable continue to suffer�

We could be in for more wild swings later today, when a slew of data come out at 8:30 am GMT.

The current account is expected to show that the deficit decreased from 8.8 billion pounds to 7.7 billion pounds. Also being released is the last revision to last quarter�s GDP report. It is expected to be revised upwardly to show a decline of 0.6%.

Also being released is some data on credit conditions. Net lending to individuals � a measure of the amount of credit granted to consumers � is expected to risen by 300 million pounds in the last month. Keep note, that there have been concerns on whether credit is actually being passed to consumers� which is why the BOE has extended quantitative easing measures by 25 billion pounds� I think if the data comes in any worse, it could spur another round of pound selling�

The CBI realized sales report � an index that rates the current level of sales volume � will also be released at 10:00 am GMT. The index is expected to show a slight increase and print a score of -15, up from the previous months score of -16.

Lastly, the Gfk Consumer Confidence report will be released at 11:01 pm GMT. Given the recent concerns of the UK�s outlook, it is possible that this report could come in worse than expected. It is forecasted to have a reading of -24, which is slightly higher than August�s mark of -25. If it does show a bigger improvement, it might just provide some support for the slumping pound.

With so much data being released today, be careful trading my Forex friends!

69

The pound held its ground and stayed resilient to the USD rally yesterday. Reassuring comments from BOE officials kept the pound afloat even as other major currencies gave way to the USD. However, the shifting stance of the BOE raised a few questioning eyebrows.

BOE officials announced that they are not planning to cut their deposit rate anytime soon… Wait a minute, didn’t they just say that they were considering this alternative easing measure a couple of weeks ago? They also said that the market overreacted to BOE Governor King’s earlier statement regarding a weak pound. These remarks soothed fears concerning the pound, which then sprinted towards the 1.6000 mark.

Meanwhile, UK’s current account deficit swelled from 4.1 billion GBP to 11.4 billion GBP in the second quarter. This deficit, which amounts to 3.3% of their GDP, is the largest since 2007. Their final GDP was revised a tad higher from -0.7% to -0.6% for the second quarter, bringing the annualized pace of contraction to 5.5%.

Let’s now take a look at the more upbeat reports from yesterday… The CBI realized sales report showed that conditions in the retail sector are starting to stabilize. The results of the survey showed that 39% of retailers said that year-on-year sales volume rose in September while 36% of retailers reported falling sales volumes. This brings the resulting balance to 3%, which was much better than the consensus at -15%. This was also a notable improvement from August’s -16% reading.

The GfK consumer confidence report was also a boost for the pound as the index for consumer sentiment climbed from -25 to -16 in September. This was the index’s highest reading since January 2008 as it increased at its fastest pace since 1995. No wonder the pound climbed higher!

Today, the UK takes a quick break from releasing economic reports. The only event risk from the UK is monetary policy committee member David Miles’ speech at the 14th Annual Northern Ireland Economic Conference. Would we hear of another set of conflicting comments from the BOE? Or would he be able to clear up the doubts regarding the central bank’s credibility? Well, we’ll find out at 9:00 am GMT today. Stay tuned!

70

The pound rallied against the greenback yesterday to close at 1.5980 and trade as high as 1.6127. The cable rebounded two days after hitting a fresh 3-month low at 1.5771 just this Monday.

External BOE MPC Member David Miles delivered a speech at the 14th Annual Northern Ireland Economic Conference, in Belfast yesterday. In his speech, he mentioned that the BOE�s �175 billion debt-buying program s aiding the economy�s recovery. These purchases are believed to bolster spending down the line. He also noted that central bank�s QE program will be reversible once the recovery is secured.

Today (8:30 am GMT), UK�s manufacturing PMI for the month of September will be issued. The index is projected to advance to 50.2 from 49.7. It has been tiptoeing over the 50 point marker for three months now. A score above 50.0 would bring UK�s manufacturing sector back to expansionary mode which would benefit the GBP at least in the short term.

The Bank of England will also release the result of its credit conditions survey. The report contains a comprehensive data on secured and unsecured lending to households, small businesses, non-financial corporations, and non-bank financial firms. Increases in lending would mean that the economy�s credit condition is becoming more lax which at this point in time would reflect positively on the economy and the pound.

71

The pound dropped back down to the 1.5900 price level against the dollar yesterday as equity markets were visited by their good friend risk aversion. Unlike other major currencies, it seems that UK�s economic background has prevented the pound from making significant headway against the dollar.

The manufacturing PMI released yesterday gave more evidence to UK�s shaky fundamentals. The index, which had a forecast of 50.2, came short of expectations when it printed a reading of 49.5 for October. The PMI is a way to see whether the manufacturing industry is expanding or contracting using 50 as its baseline figure. A reading above 50 indicates that the industry is growing.

On today�s economic cupboard, we have the Nationwide HPI at 6 am GMT and the construction PMI at 8:30 am GMT.

For the first report, economists expect that house prices increased by 0.8% between September and August. The previous reporting period�s figure was an increase of 1.6%. The construction PMI, on the other hand, is projected to improve to 48.7 from 47.7. Like the manufacturing PMI, 50 is the �line-in-the-sand�. Even if the forecast holds, it would still mean that the construction industry is shrinking.

If these reports show worse-than-expected figures, we might see pound bears take control and bring the currency lower against major currencies again…

Oh, and don�t underestimate event risk tonight! Prepare for a highly volatile US session as the non-farm payrolls is due. You may check my blog for my take on that!

72

What a douzy! A lot of movement in Cable trading last Friday, as we saw the pair shoot up and down during the US session. The GBPUSD hit as low as 1.5806, before bouncing back up and ending the week at 1.5913

Mixed results from economic data released on Friday. Construction activity contracted for the 19th consecutive month, as the construction PMI printed a score of 46.7, hitting below the 50.0 contraction or expansion line. This was worse than the forecasted 48.2 reading and a drop from July’s reading of 47.7

On the other hand, the Nationwide HPI report indicated that housing prices rose for the 5th consecutive month in September, rising by 0.8%, which was in line with expectations. More importantly, this marked the first time since April 2008 that they didn’t show an annual drop. Still, despite the good news, we didn’t see much of a market reaction. I had expected some people to jump for joy and “raise the roof” but it seems that some still remain cautious over UK recovery.

Over the weekend, the head honchos over at the IMF called up UK officials, warning them that the UK could be in for a jobless recovery. Hmmm… interesting timing, especially since the MPC rate statement could be released later this week! Could the Bank of England use this as a reason to extend their asset purchase program?

Word on the street is that they may delay that decision till November… The 175 billion pound program is scheduled to end next month, so perhaps BOE officials are just waiting for more data to come in before making the big decision. Nevertheless, I’m just putting it out there for y’all to think about and be wary of for later this week.

We’ll be starting off the week with the service sector’s PMI report coming out today. The index is expected to print a reading of 54.6, a slight improvement from the previous month’s score of 54.1.

Tomorrow could bring a whole lot of action, with manufacturing and industrial production data both coming out at 8:30 am GMT, while the nationwide consumer confidence index is due at 11:01 pm GMT.

Manufacturing and industrial production are expected to show slight growth, although at a slower pace than from the previous month. Consumer confidence is also expected to have increased, as the index is projected to have a reading of 68 after posting a score of 63 last month.

Also, at 2:00 pm GMT, the NIESR GDP estimate will be released. The report, which measures the estimated change in GDP over the past 3 months, printed growth of 0.2% in September’s release. Would it do the same for tomorrow’s printing?

73

The pound was off to a good start as it climbed steadily towards the 1.6000 mark during the Asian session. Boosting the pound was the service sector PMI, which printed better than the consensus. During the US session however, the pound gave back its gains and landed right where it started.

Expansion in the services sector continued for another month, bringing the services PMI from 54.1 to 55.3 in September. The indicator has been enjoying its stay above the 50.0 mark, which indicates expansion, for the past five months. Things are looking bright for the services sector which has reached its two year high in terms of industry growth. Even so, some economists are quick to caution that the growth in services is starting to lose momentum. With many businesses still planning to implement further layoffs, the sustainability of the expansion is still in question.

For today, UK has its manufacturing production data, NIESR GDP estimate, and Nationwide consumer confidence on tap. Manufacturing production is expecting to see a 0.4% uptick in August after it posted a 0.9% increase in July. Since 80% of industrial production belongs to manufacturing, the release of this report at 8:30 am GMT would probably provide some volatility for the pound. Industrial production, which is projected to rise by 0.1%, is also due at that time.

The National Institute of Economic and Social Research expected the British economy to have made it out of the recession in August as they printed out a 0.2% for the month. The actual estimate for September, if positive, should give the pound a little more strength to hold on to its gains.

The Nationwide consumer confidence report is also expected to be on the optimistic side. The reading could climb from 63 to 68 in September and thus boost the pound. But we’ll see! The report could be hiding some downside surprises up its sleeve. Be careful out there!

74

It was a crazy day for the the cable (GBPUSD) yesterday as it swung wildly on both directions. The pair started the day strong and for a time even broke the 1.6000 resistance during the Asia session. It, however, made a sharp turn and dove all the way down to 1.5900 shortly after.

The pound, as well as most of the other “anti-dollars”, opened on a good note as it was buoyed by the broad-based optimism in the markets brought about by the surprise hike in the RBA’s interest rate.

The main culprit that drove the pound back to Earth was the dismal UK manufacturing and industrial production results. Manufacturing production for August unexpectedly dropped by 1.9% after posting a 0.7% gain in July. Industrial production also fell by 2.5% after advancing by 0.5% in the previous period. Both accounts were projected to gain rise by 0.4% and 0.1%, respectively. Tight lending may possibly be the cause of these drops. The road to recovery for the UK, hence, would be longer if the government and the BOE cannot find a solution to “really” ease the country’s financial condition.

The NIESR GDP estimate later came out and posted a flat - 0.0% - GDP growth. On a separate note, UK’s nationwide consumer confidence index increased to 71 from a score of 65. Despite the increase in “confidence,” the pound remained frail.

No economic reports are due today in the UK. However, the bearish sentiment on the UK’s economics may continue to linger. Such could put further pressure on the pound.

75

The absence of economic data kept the pound within a 100-pip range against the dollar yesterday. With the Bank of England’s rate statement coming up today, we might see the GBPUSD pair continue to move sideways ahead of the release.

The BoE’s Monetary Policy Committee has already committed total of 175 billion pounds in an attempt to unfreeze credit markets. Economists don’t expect rates to be changed or any expansion of the bank’s quantitative easing program but we all know how aggressive the BoE can get. In fact, in the most recent summit G7, the member nations pledged that they would keep their accommodative stance in terms of monetary policy to make sure that recovery gets underway. With the recent plethora of poor economic data, we don’t know what the BoE would pull out of its sleeves. Watch out for the announcement at 11 am GMT.

Stay safe and don’t get caught with your pants down today… we all know how volatile the pound can get.

76

Chop chop! GBPUSD trading was choppy yesterday, probably because of anticipation of the BOE interest rate decision. Still, the volatile movement was to the topside and the pair hit a monthly high before cooling off and ending the day at 1.6073, a gain of over 100 pips on the day.

The Bank of England kept interest rates at 0.50%, but also decided to spend the remainder of their 175 billion asset purchase program. They hope that by doing so, the economy will continue to recover. BOE officials did say however, that they could re-evaluate the plan next month, when the program is expected to end. Take note, a couple of months back, BOE Governor Mervyn King was one of those who was calling for even more stimulus. If the BOE changes its forecast next month, perhaps King will get his Christmas wish a little early…

To end the week, we’ve got some trade and inflation data due at 8:30 am GMT.

Last month, the deficit stood steady at 6.5 billion. It is expected to decrease slightly to 6.3 billion for this month’s release. I don’t think that this will move the markets too much, but just be wary its release time just in case it comes in to show a surprise.

The producer price index – which measures the change in the prices of raw materials that manufacturers pay for – is projected to have fallen by 0.9% in September. Recent concerns of deflation have died down a bit as people have been jumping all over signs of recovery. I suspect we may only see a strong market reaction if this report comes in much worse than expected.

77

Both fundamentals and technicals ganged up and beat the pound last Friday, causing the GBPUSD to bleed by more than 250 pips. Although the BoE left both the interest rate and the size of their quantitative easing program unchanged, traders turned bearish on the pound as the UK’s industrial production report presented dismal results.

Industrial output slid down by 2.5% in August, which was far worse than the consensus of a 0.2% gain. This drop in output was the largest since January, signaling that the British economy is still having a tough time shaking off the effects of the recession.

The disappointing industrial production report overshadowed the improvements in UK’s trade balance and PPI figures. The trade deficit narrowed from 6.4 billion GBP to 6.2 billion GBP as exports fell 0.6% month-on-month while imports dropped 1.2%. Meanwhile, producer prices fell by 0.5% instead of the expected 0.9%.

Watch out for UK’s inflation and employment reports this week. Is the pound in for more heavy beating or would it be able to get back on its feet? The inflation report, which is due Tuesday, is expected to show that inflationary pressures are easing. On the other hand, the employment report due Wednesday is projected to post another 25K increase in unemployment. Hmm, it looks like things ain’t looking too bright for the UK…

For today, BRC retail sales monitor and RICS house price balance are on tap. Retail sales were down 0.1% on a year-on-year basis in August and who knows whether this indicator could rebound to its June and July levels when it posted 1.4% and 1.8% upticks respectively. RICS house price balance is expected to show that 15.1% of surveyors reported house price increases in their respective areas. Tune in for the actual results at 11:00 pm GMT.

78

The pound continued its slump against the greenback as it once again marked a new yearly low in yesterday’s price action. The cable fell to 1.5729 before closing at 1.5812. With UK’s CPI seen to slow, the pound could even fall further.

Earlier today, UK’s BRC retail sales monitor and RICS house price balance for September were published. After falling by an annualized 0.1% in August, retail sales suddenly jumped by 2.8%. The house price balance also logged in a better-than-expected result at 22.0%, more than doubling the previous month’s 10.0% change. The pound got some support following the reports. Though, it was short lived as it continued to slide shortly after.

Today, UK’s CPI figures will be at 8:30 am GMT. The year-over-year headline inflation number is projected to slow to 1.3% from 1.6%. A score of 1.3% would mark the country’s lowest inflation level in 5 years. Meanwhile the RPI, which measures the change in the price of goods and services purchased by consumers for the purpose of consumption, covering the same period is also seen to slide further to -1.5% from -1.3%.

Tapering prices plus the likely positive earnings by firms in the US would put more downward pressure on the cable.

79

The GBP/USD took a dive on poor inflation numbers yesterday but managed to pick up the pace and rallied furiously once the initial selling frenzy was over. The GBP/USD pair ended the US session at 1.5889.

UK’s consumer price index, the BoE’s primary gauge of the country’s inflation rate, grew slower than expected. It printed that the average level of prices rose only 1.1% and not 1.3% like anticipated. This is seen as GBP negative as it reinforces the BoE’s stance to keep interest rates low to revive the flow of money and investment in the recovering economy.

Today, a bunch of reports regarding the country’s labor market will be released at 8:30 am GMT. These are the Claimant Count Change, the unemployment rate and the employee earnings index.

The Claimant Count Change is a report that measures the monthly change in the number of people claiming jobless insurance. The forecast for September stands at 25,100, slightly higher than the previous reporting period’s 24,400.

In other news, the country’s unemployment rate is forecasted to edged up to 8.0% in August from 7.9% in July. Meanwhile, the employee earnings index, which measures the average change of the income of workers, would probably show a 1.4% increase.

The GBP has been performing terribly against the USD lately and if these reports come out worse-than-expected, we could see another round of GBP selling in the markets again.

80

Cable went spinning like a DJ yesterday, as there was a lot of movement and noise throughout the trading party. The GBPUSD was all over the place, before finally settling at 1.5969 – a gain of almost 80 pips on the day.

The GBP was boosted by some nice employment data, as the Claimant Count Change report came out better than expected. The report printed that 20,800 people filed for unemployment benefits for the first time in September – it was projected that this figure would be at 25,100. It also a nice improvement from the previous month’s release of 23,000. A separate report also indicated that worker’s income rose by 1.6% in August.

In addition, the unemployment rate rose slightly less than expected. Reports printed that the rate now stands at 7.9% after it was expected to reach 8.0%. Some suggest that job losses were limited potentially because GDP may have rose this past quarter. Take note that GDP had been falling for the past 4 quarters. Also, remember that employment data is a lagging indicator. If we see improvements from other sectors of the economy, we may see the UK labor market continue to improve.

Nothing on deck for today or tomorrow, so let’s see if the pound can sustain the run its made the past couple of days.

81

Just a few words from a BoE policymaker confirming that their quantitative easing program is working and… BOOM! The cable shoots up almost 300 pips! Not to be outdone was the guppy, which jumped from 143.00 to 147.50!

In monetary policy committee member Paul Fisher’s interview with the Financial Times, he remarked that the central bank’s asset purchase program was “having the scale and speed of impact” that they have hoped for. He added that the BoE may halt their asset purchases temporarily, implying that the central bank is unlikely to expand their easing programs next month. This was taken as a hawkish signal by most traders, thus allowing the pound to break free from its long-term downtrend.

USD weakness also worked to the advantage of the cable, which was initially indifferent to the recent USD sell-offs because of the highly bearish economic outlook for the UK. Analysts also pointed out that much of the cable’s and guppy’s movement yesterday was due to stops being triggered on short positions.

Would the pound be able to sustain its rally until the weekend comes or would the sellers take it from here? UK’s economic calendar has no reports scheduled, which means that the pound could continue to build up yesterday’s strong upward momentum. Economic releases and earnings reports from the US could make an impact on the cable’s price action but if risk appetite is the theme for today’s trading, then the pound might be in for more gains… I’m tellin’ ya, the “pound” sounds heavy but it sure can fly!